Euro supported by solid Dutch auction

Tue Apr 24, 2012 7:45am EDT
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By Nia Williams

LONDON (Reuters) - The euro edged higher against the dollar on Tuesday after a debt sale in the Netherlands produced solid results despite the Dutch government's collapse in a crisis over budget cuts the previous day.

Political uncertainty over the growing prospect of a change of leadership in France as well as the Dutch impasse weighed on the single currency. Elsewhere in the euro zone, highly indebted Spain's borrowing costs remained a worry for investors.

The Netherlands, one of the euro zone's few remaining AAA-rated economies, sold 1.995 billion euros of two- and 25-year government bonds, roughly in the middle of its target range, a day after Prime Minister Mark Rutte resigned.

The euro rose 0.2 percent to a session high on Tuesday of $1.3184, paring losses from the previous day when disappointing euro zone PMI data pushed it to a low of $1.3103, and it last traded at $1.3162.

The currency, however, remains in a range roughly between $1.30 and $1.33 which it has kept within since early April. Traders cited talk of bids under $1.3110 and lower at $1.3070, and offers from Middle Eastern investors at $1.3180.

"There has been more chat about the resilience of the euro that's spooking some people out of playing it lower over the short term, but there are some very significant risks ahead," said Derek Halpenny, European head of currency research at Bank of Tokyo-Mitsubishi.

Ratings agency Moody's said the collapse of the Dutch government after failing to agree on austerity cuts was credit-negative, although it maintained the country's triple-A rating . Fellow agency Fitch warned last week it was on the verge of taking negative action on the rating.

Many investors were also concerned about events in France where Socialist Francois Hollande - who has promised to renegotiate a European budget pact - won the first round of France's presidential poll on Sunday.   Continued...

Euro banknotes are placed on a currency graph in this picture illustration taken January 22, 2011. REUTERS/Dado Ruvic