ECB bond plan boosts euro; dollar volatile

The euro rose in Asia on Monday after the European Central Bank announced steps to ease tensions in the euro zone debt market, while the Group of Seven major industrialized nations affirmed their vows to support financial market stability and growth.

But the U.S. dollar wallowed near a record low against the Swiss franc following Standard & Poor's downgrade of the United State's credit rating last Friday.

The ECB said on Sunday it would 'actively implement' its bond buying programme, signaling it would buy Italian and Spain government bonds to halt financial market contagion.

Also hoping to soothe market jitters, G7 finance leaders agreed to offer ample liquidity to stabilize markets if needed.

"They are working against a pretty bearish market sentiment generated over the last couple of weeks and culminating in the historic nature of the events over the weekend," said Greg Gibbs, strategist at RBS in Sydney.

"All this make for a difficult start to the week. It may be the case that investors continue to sit on their hands and traders keep risk really tight. Unfortunately, that could fuel a lack of confidence in growth."

The euro briefly climbed as high as $1.4432, up more than a cent from late New York levels on Friday and a long way from last week's lows around $1.4055.

A lack of detail on the ECB's bond buying plans then pulled it back to $1.4318.

Against the yen, the common currency edged up to 112.51 yen, from New York's 112.16, before reversing direction to last stand at 112.09. It weakened against the Swiss franc, falling to 1.0919 francs, but held above an all-time low around 1.0719 plumbed last Friday.

Both the franc and yen remained underpinned by safe-haven flows, keeping alive the threat of intervention by Swiss and Japanese authorities to weaken their respective currencies.

But U.S. gold futures and cash gold, sought in times of market turmoil, hit records.
"There are few places you can obviously hide ... and the ones that you can hide in are doing very well. Gold is the beneficiary because there is no central bank to sell it," Gibbs added.
The ECB's step could mark a watershed in the bank's fire-fighting after modest bond buying efforts last week failed to stem contagion, raising the prospect that the euro zone's third and fourth biggest economies could also face a debt crisis.

Traders said the market will be closely watching to see how aggressively the ECB will be in supporting euro zone government bonds.

WARY

The greenback stayed under pressure against a basket of major currencies, weighed by S&P's downgrade of the United States by one notch to AA-plus, from the top notch AAA level, on concerns about growing budget deficits.

S&P said the decision reflected its view that the debt ceiling deal agreed last week fell short of what was needed. For stories on the U.S. ratings.

The dollar fell as low as 77.94 yen and touched a record low versus the Swiss franc under 0.7500. Over the past month, it has shed 6 percent against the Swiss franc and about 4 percent against the yen.

Investors also gave commodity currencies a wide berth, prompting further declines in the likes of the Australian dollar. The Aussie dipped to a four-month trough of $1.0375.More...