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Thursday May 20, 2010 - 20:47:13 GMT
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FOREX NEWS-Euro climbs vs US dollar, sentiment still negative

4:30pm EDT

* Euro turns higher vs dollar as shorts got squeezed

* Euro/Swiss franc rise may have spurred euro/dollar gain

* Investors still negative on euro (Recasts, adds comment, updates prices)

By Gertrude Chavez-Dreyfuss

NEW YORK, May 20 (Reuters) - The euro rose against the dollar on Thursday, helped by its gains versus the Swiss franc and speculation European monetary officials may intervene to prop up the single currency.

As the euro started to rise, investors who had bet against the single currency were also forced to buy back euros to cut their losses in what is known as a "short squeeze."

"The move seemed to have been led by the euro-franc and dollar-franc crosses," said Marc Chandler, global head of currency strategy, at Brown Brothers Harriman, in New York.

"The implied volatility....the large positions that have been built up all point to a vulnerable market -- vulnerable to a short squeeze. There have (also) been veiled threats of stronger action (on the euro) but this will not change sentiment very long."

In late afternoon trading, the euro <EUR=EBS> rose 0.7 percent to $1.2510, touching session peaks at $1.2598 on the EBS trading platform and intra-day lows at $1.2296.

A trader said there was a large euro order in the afternoon session of more than $400 million at $1.2440, which propelled the single currency higher. Markets then took out stop losses after that $1.2440 level was hit.

On the year, however, the euro was still down 12.6 percent against the dollar.

Despite Thursday's surge in the euro, sentiment on the currency remains decidedly negative, with investors concerned about a seeming lack of unity among euro zone leaders in addressing the region's debt crisis.

"Unfortunately, there is no coordinated response to this crisis from the European Union and this has hurt the euro," said Ron Simpson, director of currency research at Action Economics in Tampa, Florida.

The discord has been most apparent the last two days when German Chancellor Angela Merkel said on Wednesday the euro is in danger. "Every one of us here can feel that the currency crisis in the euro is the greatest challenge that Europe has faced (in) decades," Merkel said. [ID:nLDE64I0EN].

That was a statement that didn't sit well with French Economy Minister Christine Lagarde, who said on Thursday she does not agree with Merkel's view. "I absolutely do not think the euro is in danger. The euro is a solid and credible currency." [ID:nWEA3155].

INTERVENTION?

The euro had recovered from four-year lows on Wednesday as traders covered short positions on speculation Europe might act to check its rapid fall. For now, market players see intervention unlikely.

Eurogroup Chairman Jean-Claude Juncker said on Thursday he did not see a need to take immediate action to halt the euro's decline [ID:nTOE64I038]. This was echoed by European Union Competition Commissioner Joaquin Almunia who said there was no need to intervene. [ID:nLDE64J0YZ]

The euro also got a bid after Swiss National Bank Vice Chairman Thomas Jordan repeated a pledge to shield Switzerland from the euro zone debt crisis that could potentially lead to deflation. "Therefore (the SNB) is countering an excessive appreciation of the Swiss franc decisively." [ID:nLDE64J1XQ]/

The euro <EURCHF=> last traded at 1.4392 Swiss francs, up 0.7 percent on the day, after hitting highs of $1.4455. Traders said based on the pair's price action, it seemed the SNB intervened in the market to buy euros against the franc, but no one could confirm it.

Worries about the euro zone spooked investors in global stock and commodity markets as well, fueling a surge in the yen and U.S. dollar as safe havens. Japan and the United States have economic problems of their own. But their relatively stable financial systems and liquid currencies make them attractive to investors fleeing risk in Europe.

There was also a flight from currencies that benefit from increased risk appetite such as the Australian, Canadian, and New Zealand dollars.

The dollar fell 2.2 against the yen <JPY=> to 89.62 yen. The low-yielding Japanese currency also surged against the euro <EURJPY=R>, which plunged 1.6 percent to 112.03. At one point, the euro slipped to the lowest against the yen since November, 2001 at 109.49, according to Reuters data.

(Editing by Andrew Hay)

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