Euro slips as Greece sells bills at high yields

The euro fell to a session low versus the dollar on Tuesday after results of a Greek Treasury bill auction showed the market still demanded a high premium to hold Greek assets.

Greece easily sold its allocation of 6 and 12-month T-Bills, raising 1.56 billion euros with the inclusion of non-competitive bids, but at a yield which was costly for the debt-laden country.

The euro rose briefly in the immediate aftermath of the auction as traders reacted to a strong bid to cover ratio.

However, analysts said attention then shifted to the yield Greece had to pay -- more than double those paid at auctions in January of bills with similar maturities.

"The higher yield confirmed the high risk premium demanded for Greek assets and that has put the euro bears in a stronger position," said Audrey Childe-Freeman, currency analyst at Brown Brothers Harriman.

"The euro was already showing signs of fatigue," she said.

On Monday, the euro climbed to a near one-month high of $1.3691 after euro zone finance ministers agreed at the weekend on a financial aid package for Greece, before paring gains as investors sought clarification about the plan.

At 1132 GMT, the euro traded at $1.3587, recovering from a session low of $1.3556. Traders said a Swiss bank bought euros for an option at $1.36 expiring later in the day.

"(The auction) does not really change the underlying position that Greece has very tough times ahead, it's going through a deep recession and that's going to lead the debt to GDP ratio to surge higher," said Ben May at Capital Economics.

Despite concerns about Greece, the euro was supported from a technical perspective. Technical analysts at UBS said clearance of $1.3591 would open the door to $1.3816, a level last hit in mid-March.

Versus the yen, the euro slipped 0.2 percent at 126.45 yen. It slipped as low 125.71 yen in earlier trade as investor caution crept in regarding the Greek aid plan.

The yen was pressured earlier by a draft from a group of Japanese ruling party lawmakers which suggested the dollar should be kept around 120 yen..

The dollar hit the day's high of 93.42 yen on the proposal, before retreating to 93.00 yen, down 0.3 percent on the day.

PRICE FORECAST

The dollar hovered above a two-week low hit against the yen in Asia as stocks in the region slipped. Some said a report that the Bank of Japan may slightly revise up its consumer price forecast for the next fiscal year also helped the yen.

BOJ Governor Masaaki Shirakawa said annual consumer price falls were expected to narrow as the output gap shrinks but that the central bank did not rule out any option.

The yen remained sensitive to market expectations on the Chinese yuan. Chinese President Hu Jintao told U.S. President Barack Obama Beijing would "firmly stick" to its own path for reforming the yuan's exchange rate, the official Xinhua news agency said.

Hu added the yuan's gains would neither balance Sino-U.S. trade, nor solve the U.S. unemployment problem.

Gold near 4-month high as dollar weakens

Gold was near four-month highs of $1,168.70 an ounce in Europe on Monday as the euro surged versus the dollar after euro zone finance ministers agreed a 30 billion euro aid package for debt-laden Greece.

Platinum and palladium prices also rallied, touching 20-month and two-year highs respectively, lifted by strength in gold and expectations demand for the precious metals used in catalytic converters will rise this year.

Spot gold was bid at $1,163.95 an ounce at 5:20 a.m. ET, against $1,159.00 late in New York on Friday. U.S. gold futures for June delivery on the COMEX division of the New York Mercantile Exchange rose $3.10 to $1,165.00 an ounce.

"The announcement of a deal reached to aid Greece over the weekend will likely support risk appetite in the short term, which means that the dollar may come under pressure and the euro rebound," said BNP Paribas analyst Anne-Laure Tremblay.

"Though the short-term correlation between gold and the EUR/USD has lessened since January, it remains a significant factor in shaping the gold price.."

The euro hit one-month highs versus the dollar after euro zone finance ministers agreed a rescue package for Greece, prompting a short squeeze in the currency.

Spot gold typically benefits from dollar weakness, which lifts gold's appeal as an alternative investment and makes dollar-priced assets cheaper for holders of other currencies.

The usual link between gold and the euro/dollar eased last week as fears over the outlook for Greece boosted safe-haven flows into gold while hurting the euro, but that relationship has reemerged as one of a number of supportive factors for gold.

Euro zone finance ministers approved a 30 billion euro emergency aid mechanism for Greece on Sunday, which together with at least 10 billion euros expected from the International Monetary Fund in the first year could add up to the biggest multilateral financial rescue ever attempted.

INVESTMENT STRONG

Investment interest in gold was strong, with holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, rising to a record 1,141.041 tonnes on Friday.

Data from the Commodity Futures Trading Commission's Commitment of Traders report on Friday also showed a rise in net long positions, or commitments to buy, in the week to Apr. 6.

"The latest COTR figures... show how widespread the return of investor and speculative interest to the gold market has been," said UBS analyst Edel Tully in a note.

"Net long positioning surged 4.5 million ounces, the most significant inflow since the 6.4 million ounce rise in the week to September 8, which at that time was the catalyst for gold to push up through $1,000."

Among other commodities, oil prices also rose above $85 a barrel as the dollar fell and data showed Chinese crude imports jumped to their second-highest monthly level in March.

Industrial precious metals platinum and palladium rose, with platinum hitting its highest since August 2008 at $1,735 an ounce before easing back to $1,725.50 an ounce against $1,712, and palladium peaking at a two-year high of $519.75.

It was later bid at $511.50 against $510.

"Both metals would benefit from a period of consolidation, with chart indicators for platinum overbought with the RSI currently at 77," said James Moore, an analyst at TheBullionDesk.com.

"Friday's CoT report showed net speculative longs in both metals increased in the week to April 6th."

Silver hit its highest since January 20 at $18.58 and was later bid at $18.48 an ounce against $18.35.

Oil rises above $85 on weak dollar, China data

Oil prices rose above $85 a barrel on Monday, buoyed by a drop in the U.S. dollar and bullish data showing Chinese crude imports jumping to their second-highest monthly level in March.

Euro zone finance ministers approved a giant 30 billion euro ($40 billion) emergency aid mechanism for debt-stricken Greece on Sunday but stressed Athens had not requested the plan be activated yet.

The news drove the euro to its highest levels in nearly a month in Asian trade, while the dollar index fell 0.8 percent against a basket of currencies on Monday.

U.S. crude for May delivery was up 53 cents to $85.45 a barrel by 4:30 a.m. ET, trimming an earlier 79 cent gain.

A weaker dollar can bolster oil prices, making commodities denominated in dollars cheaper for other currency holders.

"Two factors are supporting oil: the weaker dollar after the support agreed for Greece, and the very strong import data from China," said Eugen Weinberg, commodity analyst at Commerzbank.

"China is the most important dynamo behind the movement of commodities at the moment as it is the biggest source of demand," he added.

London Brent crude rose 70 cents to $85.53, moving to a premium above U.S. crude, also known as WTI, for the first time in months with traders saying the North Sea grade was benefiting more than its U.S. counterpart from the Chinese data.

"The price rise appears to be led by international demand, which is having a more positive impact on Brent than WTI," said Christopher Bellew, broker at Bache Commodities in London.

"U.S. crude oil stocks are high and WTI has its limitations as an (international) marker price because it is based on a landlocked crude, well away from the coast," Bellew added.

The last time Brent futures traded consistently above U.S. crude was in December.

China's strong demand for oil and copper showed no let-up in March, with imports rising rapidly despite higher prices as factories returned to work in earnest after the long Lunar New Year holidays.

TARGET $90?

Crude imports by China jumped 13.8 percent from the previous month and reached 4.95 million barrels a day, preliminary data released by the General Administration of Customs showed. March's oil import levels were just a touch below December's record 20.9 million tonnes.

Barclays Capital analysts said oil prices had convincingly broken out of the $70-$80 a barrel range and could rise toward $90 as the global economy regained strength.

"The follow-through in the recovery in coming months may well be one element behind the creation of a base for a further shift up in prices," Barclays analysts led by Paul Horsnell said in a report.

"The very limited recent increases in prices seem justified; indeed, they are perhaps remarkably modest given the pace of global recovery over the past two quarters in particular."

In a sign of upbeat sentiment over oil prices, open interest positions were heavier at the NYMEX May $90 call option and the $80 and $75 put options, according to Reuters data on Friday.

Separately, money managers extended net crude oil long positions on the New York Mercantile Exchange to a record 186,732 in the week to April 6, up from 169,478 in the previous week, the Commodity Futures Trading Commission said on Friday.

Greece aid lifts euro; stocks hit 18-month high

An EU-IMF rescue package for Greece helped calm market jitters on Monday and boosted the appeal of risky assets, with world stocks hitting 18-month highs and the euro rising to its highest in nearly a month.

Greece's borrowing costs eased to their lowest levels in a week while other riskier assets like commodities were also in demand. Yields on "safe haven" German Bunds and U.S. Treasuries rose.

Euro zone finance ministers approved a 30-billion-euro ($40 billion) emergency aid mechanism for debt-plagued Greece on Sunday but said Athens had not requested it be activated yet.

Together with at least 10 billion euros expected from the International Monetary Fund in the first year, it could add up to the biggest multilateral financial rescue ever attempted.

Greece's share benchmark .ATG surged 4.9 percent, while the pan-European FTSEurofirst 300 .FTEU3 gained 0.2 percent, helped by stronger bank shares.

Swiss bank UBS (UBSN.VX) was among the top gainers in Europe, up 2.9 percent after it delivered its highest pre-tax profit since the start of the credit crisis and said withdrawals were substantially lower at all divisions.

Global equities measured by the MSCI All-Country World Index advanced 0.4 percent to 315.20 points, after hitting a 18-month high of 315.59.

Earlier, Asian shares outside Japan hit 22-month highs and Tokyo's Nikkei average .N225 rose 0.4 percent.

"The package is big enough and the term seems reasonable. For the market it means Greece will never have to panic sell and the market can't force Greece into a corner and that changes complexion of Greek bets and the euro in the short term at least," said Daragh Maher, deputy head of global foreign exchange research at Calyon.

"It's generally positive for risk because you've taken out one of the big banana skins in terms of macroeconomic risk. (But) Greece still face difficulties and other euro zone countries face difficulties. It's hard to create medium-term bullish story for the euro."

The euro was up 0.04 percent against the dollar at $1.3628, after hitting a high of 1.3691. The dollar .DXY fell 0.8 percent against a basket of major currencies.

GREEK PREMIUM FALLS

The premium investors demand to hold Greek government bonds rather than benchmark Bunds fell to 367 basis points, its lowest in a week, versus 409 basis points at Friday's settlement close.

"It's a question of how far Greek government debt can normalize now," said a bonds trader in London.

Athens will test market appetite for its debt with an auction of 1.2 billion euro Treasury bills on Tuesday and is still planning a dollar bond.

Yields on 10-year benchmark U.S. Treasuries were up 4 basis points at 3.918 percent, while those on 10-year Bunds were up 6 basis points at 3.222 percent.

Oil prices rose above $85 a barrel, buoyed by a drop in the dollar and bullish data that showed China crude imports jumping to their second-highest monthly level in March.

Offshore Chinese yuan forwards edged down against the dollar after Beijing reported its first monthly trade deficit in six years, which may decrease expectations for a rise in the yuan.