* German court hearing on euro zone bailout fund weighs on
* Euro skids to 5-week trough against yen
* Dollar slightly down vs yen as BOJ begins 2-day meeting
By Lisa Twaronite
TOKYO, July 11 The euro steadied in Asian trade
on Wednesday but hovered near two-year lows against the dollar
as investors fretted about the outcome of a German court hearing
on the euro zone bailout fund, the latest obstacle to efforts to
beat the region's debt crisis.
The political hurdles and investor scepticism about European
Union's decision-making process are likely to ensure the single
currency will remain under pressure for some time, market
"While the euro could see some short-term corrective moves
against the dollar, it is really difficult to think of taking
long positions in the coming months, considering Europe's
situation," said Masashi Murata, senior currency strategist at
Brown Brothers Harriman in Tokyo.
The euro was changing hands at $1.2266, with Monday's EBS
two-year low of $1.2225 in sight, a break of which would open
the way to a test of support at $1.20.
If that level is breached, the pair could move to test its
June 2010 low of $1.1875.
The German Constitutional Court began a hearing into whether
the euro zone's bailout fund, the European Stability Mechanism
(ESM), and planned changes to the region's budget rules are
compatible with German law. Without German backing, the ESM,
which was originally meant to start on July 1, then delayed to
July 9, cannot come into effect.
German Finance Minister Wolfgang Schaeuble said any
significant delay in approving the ESM could lead to more market
turmoil and undermine confidence in the euro zone.
The latest meeting of euro zone finance ministers this week
also failed to provide much reassurance.
While the ministers agreed to grant Spain an extra year
through 2014 to reach its deficit reduction targets, they did
not come up with a final figure for aid for the country's ailing
lenders but said some 30 billion euros would be available by the
end of this month.
The euro fell to five-week low against the yen on EBS at
97.09 yen, and last traded at 97.33 yen.
Market players said support lay at 97.02 yen, the 76.4
percent Fibonacci retracement of its June move from 95.59 yen to
101.63 yen, with bids also cited at that level.
The British pound was trading close to a 3-1/2-year high
against the euro of 78.89 pence touched on Tuesday,
with the common currency last at 78.98 pence.
The dollar last traded down slightly against the yen at
79.39 yen, with support at its 200-day moving average at
78.99 yen, as investors awaited the outcome of the Bank of
Japan's regular two-day policy meeting beginning this session.
The Bank of Japan is expected to hold off on easing monetary
policy despite easing moves last week by the central banks of
Europe, Britain and China, convinced that the country's economy
is still on track for a moderate recovery.
The Australian dollar also traded near an all-time high
against the single currency of A$1.1974 hit on
Tuesday, and was last trading at A$1.2008. Against the U.S.
dollar, the Aussie rose 0.3 percent to $1.0208.
The weaker euro helped support the dollar against a basket
of six major rivals, with the dollar index holding ground
at 83.272, down 0.1 percent but still not far off a June 1 peak
of 83.542. A break of that level would take it back to mid-2010
(Additional reporting by Masayuki Kitano and Reuters FX analyst
Rick Lloyd in Singapore; Editing by Simon Cameron-Moore)