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FOREX-Euro flat vs dollar after two-day advance
(Adds quote, updates prices, adds details)
* Euro comes off one-month high, talk of $1.2450 option barrier
* Aussie hits 4-1/2-month high, RBA holds rates steady
* Euro/Swiss franc steadies after spiking to five-month high
By Wanfeng Zhou
NEW YORK, Aug 7 (Reuters) - The euro traded little changed against the dollar o n T uesday, taking a breather after a two-day rally sparked by expectations of further action by the European Central Bank to lower borrowing costs for Spain and Italy.
The Australian dollar rose to its highest in more than four months against the greenback after the country's central bank kept interest rates unchanged at 3.5 percent and dropped few hints about easing soon.
Rising expectations that the ECB could step in as early as next month to reduce crippling high Spanish and Italian borrowing costs by buying their bonds have sparked a global rally in risky assets since Friday.
"The euro's getting a lift because there are some plans coming forward from the ECB to help ease the debt crisis," said Brian Kim, currency strategist at RBS Securities in Stamford, Connecticut. "Besides, there was too much short pressure on the euro last week. This is sort of an alleviation of those shorts."
The euro was little changed at $1.2399, pulling away from a one-month high of $1.2443 set o n M onday. Traders reported talk of resistance at $1.2450.
Intraday bias in the euro remains on the upside, with the next target at around $1.2764, the 50 percent retracement of the move from the $1.3486 high hit in late February to $1.2040, the more-than-two-year low struck on July 24.
Markets were initially disappointed last week when the ECB failed to take immediate action to stabilize bond markets. But traders took ECB chief Mario Draghi's warning not to bet against the euro seriously and as a result the euro has gained momentum.
Italian Prime Minister Mario Monti's victory on Tuesday in a vote of confidence on a bill that would cut spending to rein in the deficit also helped the euro.
But uncertainties remained. There were concerns about the potential for opposition from Germany, the euro zone's largest country, to any large-scale bond-buying program.
"Skeptics remain and the ECB will have to replace rhetoric with action sooner (rather) than later for this upward move to gain any momentum," said Matthew Lifson, senior trader and analyst at Cambridge Mercantile Group in Princeton, New Jersey.
"There are still people predicting the $1.2000 level in the euro by year end."
Last week, the ECB indicated any intervention in sovereign bond markets would not come before September and such a move would come only if governments first applied for assistance from the rescue funds.
EURO SPIKE VS FRANC
Late on Monday, the euro had briefly risen to its highest in nearly five months against the Swiss franc on trading platform EBS after a slew of computer-generated orders pushed it higher, traders said.
The euro rose to 1.20928 francs after 2000 GMT on M onday from around 1.2015 in a matter of minutes on EBS as the algorithmic orders were executed. The euro soon dropped back down and on Tuesday was last at 1.2013 francs, continuing to hold just above the Swiss National Bank-imposed floor of 1.20 francs.
The Australian dollar hit a high of $1.0604, its strongest since March 20, before retreating to $1.0553, down 0.1 percent. The Reserve Bank of Australia kept interest rates steady and appeared in no hurry to cut borrowing costs again.
But the RBA's reference to the Australian dollar in its accompanying statement caught some analysts' attention. The central bank said the currency's exchange rate remains high despite a drop in the terms of trade.
The dollar rose 0.5 percent to 78.62 yen, staying above a two-month low of 77.90 yen struck last week. (Additional reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler)
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