FOREX NEWS - Euro, Aussie bounce but dollar to win out

* Euro hits three-week high of $1.3294, Aussie recovers lostground * Moves seen in thin trade, dollar should remain firm onU.S. outlook * Euro zone, China slowdown concerns hamper risk sentiment By Neal Armstrong LONDON, March 23 (Reuters) - The euro and the Australiandollar bounced back against the U.S. dollar on Friday asconcerns over a slowdown in China and the euro zone easedslightly, but dealers said the greenback would be supported bythe improving outlook in the United States. Worries about faltering global growth in the euro zone andChina, which had hit stocks and riskier currencies a dayearlier, eased off slightly tempering demand for safer bets suchas the dollar and the yen. The dollar slipped to a three-week low versus the euro and the Swiss franc, also plumbing a two-weektrough against a basket of currencies but traders saidthe sell-off was in thin liquidity and expected the greenback tohold firm. "We've definitely seeing a rotation of growth expectationswith the U.S. outlook marginally better and China's outlookmarginally downgraded. This should be positive for the dollar,"said Geoff Kendrick, currency strategist at Nomura. "But it's been thin this week and the market still seems tobe undecided which may explain the volatile moves. I think weneed to see U.S. 10-year yields break above 2.4 percent forfurther dollar gains." U.S. 10-year notes yielded around 2.26 percenton Friday after stalling shy of 2.40 percent on Tuesday. Signsof improvement in U.S. economic conditions have boosted yieldsand the dollar in recent weeks. The dollar-index was down around 0.4 percent for the dayafter slipping to 79.214. It hit a two-month high of 80.738earlier this month. The euro climbed from Thursday's low of $1.3133, rising toa three-week high of $1.3293 before dipping back to$1.3253, up 0.4 percent for the day. Many market players remain short of euros on worries over aneconomic slowdown and high levels of sovereign debt in many eurozone countries, notably Spain, but for now the common currencywas gaining respite. "A week short on data and events is likely to end as itbegan - with illiquid trade and the resulting intraday jumps inEUR-USD. As a result any jerks up or down might easily knockmarket participants out of their positions in the range between1.3000 and 1.3335," said Commerzbank in a note. YEN SLIPS The euro rose 0.6 percent to 109.55 yen, in themiddle of the week's 108.49/111.57 range. Yen weakness was reinforced on selling by Japan importers,whose purchases of fossil fuels have surged as most nuclearreactors in the country were taken offline after the Fukushimadisaster last year. The yen is likely to benefit from repatriation flows aheadof the Japanese fiscal year-end on March 31, but any gains couldprove fleeting given how determined the Bank of Japan is to keepmonetary policy ultra-loose. "While we could see some short-term bounce going into thefiscal year-end, the broad trend for the yen is lower," saidSimon Derrick, head of currency research, at Bank of New YorkMellon. "Given how successful the Bank of Japan has been in pushingthe yen lower, they will look to pump additional funds and thatwill keep the yen weaker." The greenback has gained 7.5 percent against the yen sincethe start of this year, while the euro has jumped more than 10percent, with gains picking after the Bank of Japan surprisinglyeased policy by announcing more quantitative easing in February. The Australian dollar recouped some of this week's heavylosses against the yen to trade up around 0.1 percent on the dayat 86.00 yen, but investors are likely to be cautiousabout perceived riskier currencies amid growing signs of aglobal slowdown. The Aussie moved further away from a two-month low of$1.0336 hit on Thursday to trade as high as $1.0450.Traders said stop-loss buy orders had been triggered at$1.0420/30, while Asian sovereign supply was noted around thehighs as it later eased back below $1.0400.© Thomson Reuters 2011. All rights reserved.