* Hopes of a smooth Greek debt swap helps euro
* But uncertainty remains before deadline, would cap euro
* ECB, BOE decisions awaited, Fed eyes new bond-buying approach
By Anirban Nag
LONDON, March 8 (Reuters) - The euro climbed on Thursday on better appetite for riskier assets as optimism grew that Greece would secure enough private sector take-up for a critical bond swap, but gains were likely to be checked until its becomes certain the deal will go through.
The euro and the dollar were both higher against the yen after Japan's current account swung to a record deficit for the first time in three years in January, driving some short-term players to sell the Japanese currency.
In Europe, indications are major banks and pension funds are likely to take part in the Greek deal, easing concerns about a chaotic default. But some hedge funds and several Greek pension funds are still holding out, injecting uncertainty before the deadline expires later in the day and likely to keep the euro below its 21-day moving average of around $1.3241.
Greece aims to persuade 90 percent of creditors to take part in the bond swap. With two-thirds acceptance or more it may be able to trigger collective action clauses (CAC) to force bondholders to accept losses, an event that would have knock-on effects for banks but has largely been priced-in.
A Greek government official said there was a strong take-up of its bonds swap offer, with some in the market suggesting that over 75 percent of the bondholders had taken up the offer.
"The Greek PSI deal is clearly a big risk event and indications are the participation will not reach the desired level," said Raghav Subbarao, currency analyst at Barcaps.
"That will likely lead to retroactive CAC and trigger CDS. The net exposure for CDS may be manageable, but this will weigh on the euro in the short term." He expected the euro to maintain a downward trend and drop to $1.26 in the next six months.
The euro was up 0.6 percent at $1.3227, with traders citing buying by a central bank reserve manager in early European trade. Offers to sell the euro are said to be the $1.3230-40 area with many investors looking to sell into a bounce to $1.3250.
Analysts said that a smooth resolution of the Greek debt swap deal, which is key for a 130 billion euro bailout package for the troubled nation, could give the euro a short-term boost, but any move back to recent highs of $1.3486 was unlikely.
Dealers will also be watching for any signs from the European Central Bank that it could rein in the huge stimulus it has given the euro zone economy.
With most of the region, except Germany, on the brink of recession, and the threat of debt contagion still alive some traders maintain there is still an outside chance that the bank may consider cutting interest rates later in the year; most economists say that is now off the table.
The ECB is widely expected to keep rates on hold on Thursday, making President Mario Draghi's news conference following the decision the day's key event.
YEN UNDER PRESSURE
The Bank of England will also announce a rate decision later on Thursday. It is expected to stick to its ultra-easy policy with focus shifting to whether it will implement another round of quantitative easing in May.
The U.S. dollar was pegged back by a Wall Street Journal report suggesting Fed officials were considering buying longer-dated bonds and sterilising the money flow by draining funds from the banking system.
Nevertheless, it gained against the yen after Japanese current account deficit numbers, climbing 0.4 percent to 81.48 with traders citing offers around 81.55 yen and option-related selling at 81.95-82.00 yen.
"The data held no real surprises but still managed to encourage some yen selling," said Derek Halpenny, European head of global currency research at Bank of Tokyo Mitsubishi.
Still, some analysts said the data highlighted Japan was on track to losing its creditor nation status, a factor that would weigh on the yen over the medium term. Subbarao at Barcaps expected the dollar to rise to 84 yen in the next 12 months.
The greenback has gained nearly 6.5 percent against the yen since the end of January, before getting stuck in the band of 81.87-80.50, formed by this year's high and the 23.6 percent retracement of its February rise.
Meanwhile, hopes of a smooth passage of the Greek debt swap deal supported riskier currencies and stocks. The Aussie gained 0.6 percent to $1.0646 in line with solid gains posted across global stock markets, erasing initial losses following surprisingly soft Australian jobs data.
The New Zealand dollar was 1 percent higher at $0.8260 shrugging off the central bank's dovish monetary statement. The bank held its cash rate at a record low as expected and implied in its forecasts it will stay that way for the rest of the year.
* But uncertainty remains before deadline, would cap euro
* ECB, BOE decisions awaited, Fed eyes new bond-buying approach
By Anirban Nag
LONDON, March 8 (Reuters) - The euro climbed on Thursday on better appetite for riskier assets as optimism grew that Greece would secure enough private sector take-up for a critical bond swap, but gains were likely to be checked until its becomes certain the deal will go through.
The euro and the dollar were both higher against the yen after Japan's current account swung to a record deficit for the first time in three years in January, driving some short-term players to sell the Japanese currency.
In Europe, indications are major banks and pension funds are likely to take part in the Greek deal, easing concerns about a chaotic default. But some hedge funds and several Greek pension funds are still holding out, injecting uncertainty before the deadline expires later in the day and likely to keep the euro below its 21-day moving average of around $1.3241.
Greece aims to persuade 90 percent of creditors to take part in the bond swap. With two-thirds acceptance or more it may be able to trigger collective action clauses (CAC) to force bondholders to accept losses, an event that would have knock-on effects for banks but has largely been priced-in.
A Greek government official said there was a strong take-up of its bonds swap offer, with some in the market suggesting that over 75 percent of the bondholders had taken up the offer.
"The Greek PSI deal is clearly a big risk event and indications are the participation will not reach the desired level," said Raghav Subbarao, currency analyst at Barcaps.
"That will likely lead to retroactive CAC and trigger CDS. The net exposure for CDS may be manageable, but this will weigh on the euro in the short term." He expected the euro to maintain a downward trend and drop to $1.26 in the next six months.
The euro was up 0.6 percent at $1.3227, with traders citing buying by a central bank reserve manager in early European trade. Offers to sell the euro are said to be the $1.3230-40 area with many investors looking to sell into a bounce to $1.3250.
Analysts said that a smooth resolution of the Greek debt swap deal, which is key for a 130 billion euro bailout package for the troubled nation, could give the euro a short-term boost, but any move back to recent highs of $1.3486 was unlikely.
Dealers will also be watching for any signs from the European Central Bank that it could rein in the huge stimulus it has given the euro zone economy.
With most of the region, except Germany, on the brink of recession, and the threat of debt contagion still alive some traders maintain there is still an outside chance that the bank may consider cutting interest rates later in the year; most economists say that is now off the table.
The ECB is widely expected to keep rates on hold on Thursday, making President Mario Draghi's news conference following the decision the day's key event.
YEN UNDER PRESSURE
The Bank of England will also announce a rate decision later on Thursday. It is expected to stick to its ultra-easy policy with focus shifting to whether it will implement another round of quantitative easing in May.
The U.S. dollar was pegged back by a Wall Street Journal report suggesting Fed officials were considering buying longer-dated bonds and sterilising the money flow by draining funds from the banking system.
Nevertheless, it gained against the yen after Japanese current account deficit numbers, climbing 0.4 percent to 81.48 with traders citing offers around 81.55 yen and option-related selling at 81.95-82.00 yen.
"The data held no real surprises but still managed to encourage some yen selling," said Derek Halpenny, European head of global currency research at Bank of Tokyo Mitsubishi.
Still, some analysts said the data highlighted Japan was on track to losing its creditor nation status, a factor that would weigh on the yen over the medium term. Subbarao at Barcaps expected the dollar to rise to 84 yen in the next 12 months.
The greenback has gained nearly 6.5 percent against the yen since the end of January, before getting stuck in the band of 81.87-80.50, formed by this year's high and the 23.6 percent retracement of its February rise.
Meanwhile, hopes of a smooth passage of the Greek debt swap deal supported riskier currencies and stocks. The Aussie gained 0.6 percent to $1.0646 in line with solid gains posted across global stock markets, erasing initial losses following surprisingly soft Australian jobs data.
The New Zealand dollar was 1 percent higher at $0.8260 shrugging off the central bank's dovish monetary statement. The bank held its cash rate at a record low as expected and implied in its forecasts it will stay that way for the rest of the year.
