FOREXAK.COM – FOREX-Euro on back foot as Spanish bank worries weigh – Reuters UK – News and Headlines

* Spanish bank bailout doubts persist

* Analysts point to Italy as next potential risk

By Antoni Slodkowski

TOKYO, June 12 (Reuters) – The euro was on the defensive on Tuesday as worries over Spain’s hurried bank bailout were compounded by jitters about upcoming elections that may determine Greece’s future in the euro.

Initial euphoria over Spain’s weekend deal quickly evaporated as investors feared the bailout-related payments could rank ahead of regular government debt in the queue for repayment, adding to its high borrowing costs.

There were also concerns that existing bondholders could sustain losses in any debt restructuring if the euro zone’s permanent bailout fund was used for the rescue.

These jitters saw the euro come off its Monday high at $ 1.2672 to last stand at $ 1.2470, still some distance away from the two-year low at $ 1.2288 hit earlier in the month.

“Yesterday’s move had more to do with short-covering than fresh buying and with so much uncertainty ahead of Greek elections it’s just impossible to actively buy the euro now,” said Teppei Ino, currency analyst at Bank of Tokyo-Mitsubishi UFJ in Tokyo.

Parties that support and oppose the Greece’s international bailout are neck-and-neck in opinion polls.

“Spanish problems haven’t been properly addressed yet, but we’re already hearing Italy may also need help,” he said.

Austrian Finance Minister declined to rule out the possibility of the country having to seek aid from Europe in the months ahead, given the high interest rates it pays to borrow on financial markets.

Cyprus also strongly hinted on Monday it may have to apply for an international bailout.

Underscoring the prevailing bearish sentiment, bets against the euro surged to a record high in the latest week, while net long U.S. dollar positions extended gains, according to the Commodity Futures Trading Commission.

Against the yen, the euro fell 0.2 percent to 98.95 yen , with traders citing selling by model funds and Tokyo players dumping long positions in the pair.

Reflecting the brittle mood and the fall in the U.S. Treasury yields, the dollar dipped against the safe-haven yen to 79.32 yen, coming off the previous day’s high at 79.92 yen. The crucial support was seen at 77.65 yen hit on June 1.

Traders said any rise in the dollar may be curtailed by offers ahead of 80.00 yen. They added there are stop-loss orders above 80.00, and larger ones above 80.25 with the ascending 100-day moving average at 80.21 serving as a resistance.

The Australian dollar was last trading at $ 0.9875, from $ 0.9980 in late local trade on Monday. It rallied to $ 1.0010 early on Monday as short-covering kicked in after Spain’s rescue.

The Aussie now looks set to test minor support around $ 0.9820, with resistance sitting around $ 1.0010. Australia reopens after a public holiday on Monday. (Editing by Eric Meijer)