* Euro lower vs dollar as New York session opens
* Euro had touched session high after German data
* S&P warning piles pressure on EU leaders
(Updates prices, comment, adds details)
NEW YORK, Dec 6 The euro slipped against the
dollar for the third straight day on Tuesday, surrendering
earlier gains, as investors remained focused on Standard &
Poor's euro zone downgrade warning.
Rating agency S&P on Monday placed its long-term sovereign
ratings on 15 euro zone countries on CreditWatch negative,
which normally means a chance of downgrade within three months.
For details, see [ID:nWNA5168]
The warning, which included top-rated Germany and France,
came as the two countries announced an initiative, to be
discussed at a Friday summit, to impose budget discipline
across the euro zone through treaty changes.
Analysts said the warning has put European Union leaders
under additional pressure to produce quick results to stabilize
markets and regain confidence. If core euro zone nations are
downgraded, the European rescue fund will find it tough to
attract investor interest in its bond offerings, they said.
"The state of markets is that they are still ripe for
consolidation especially until Friday's EU summit," said
Alexander Chepurko, foreign exchange analyst at Forex Club.
"There is simply too much European drama going about and
now S&P has joined the political debate by offering its opinion
right on the eve of the summit."
The euro EUR= was down 0.2 percent at $1.3378 in late
morning New York trade, with the session low at $1.3332,
according to Reuters data.
It had touched a high of $1.3427 after German industrial
orders for October posted their strongest rise since March
2010. Traders expect offers between $1.3430-50 to cap potential
"S&P generally does not inform us of anything the markets
have not already figured out," said Jeffrey H. Bergstrand, a
finance professor at the University of Notre Dame's Mendoza
College of Business. "This will impact the markets a little,
but only transitorily. I expect some selloff of the euro
Tuesday, but little sustained impact."
Steve Barrow, head of G10 currency research at Standard
Bank in London, said he did not expect the countries to be
downgraded by S&P and the EU summit was likely to see some sort
"But there is a low tolerance level for investors to build
positions especially with an ECB meeting coming up and then the
year-end plays," he said.
Until the S&P warning, the euro had received some support
on growing expectations of an agreement at the EU summit on
Dec. 9, along with deficit-reduction steps by debt-laden
countries like Italy. That is expected to pave the way for the
European Central Bank to move more aggressively to calm the
turbulent euro zone bond market.
The bank has so far been reluctant to buy bonds of heavily
indebted states, concerned this would take the pressure off
them to sort out their finances, but signaled it may change its
stance, depending on what EU policymakers produce.
Still, any bounce is likely to be limited to
short-covering, and levels around $1.3550 should offer
resistance. Traders said positioning is also likely to be
light, heading into a ECB rate decision on Thursday.
The euro rose against the Swiss franc EURCHF= after data
showed a growing risk of deflation in Switzerland.
The euro added to gains against the Swiss franc on
Tuesday on market talk that the Bank of International
Settlements was buying euros on behalf of the Swiss National
Bank. The rumor was denied by both the SNB and BIS.
The single currency EURCHF= rose to its highest against
the franc since Nov. 17, while the dollar rose 0.8 percent to
Factbox on the week ahead [ID:nL5E7N4077]
Key points of Franco-German agreement [ID:nL5E7N53AQ]
Interactive timeline: link.reuters.com/rev89r
ECB RATE CUT EYED
The ECB is widely expected to cut interest rates and throw
more funding lifelines to stressed banks toiling against the
euro zone's debt crisis. Most banks expect the ECB to cut by 25
basis points, with less than a 10 percent chance of a 50 basis
point cut, a Reuters poll found. [ID:nL9E7KJ002]
A deeper-than-expected cut could give the euro and other
riskier currencies a brief lift, analysts said.
Against the yen, the greenback was little changed at 77.73
yen JPY=, again struggling to break the 78.00 yen barrier.
The Australian dollar fell 0.5 percent after the Reserve
Bank of Australia cut rates by 25 basis points and left the
door open for further easing AUD=D4.
(Additional reporting by Anirban Nag in London)
(Reporting by Nick Olivari)