FOREX-Euro rallies on Greece deal, US debt impasse hurts dollar

 Euro-zone deal seen as bolder than expected

* Focus shifts to US debt ceiling talks

* Dollar/yen hits 4-month low, limited by intervention fear

* Kiwi hear 30-year high, Canadian dollar at 3 1/2-year high

SYDNEY/TOKYO, July 22 (Reuters) - The euro rallied to a two-week high against the dollar in Asia on Friday after euro-zone officials gave their financial rescue fund sweeping new powers to solve Greece's debt troubles, easing fears the country's debt crisis would spread.

The dollar was punished across the board as the encouraging news out of Europe contrasted with confusion over how much progress Washington is making to avoid a U.S. default.

"Europe has made a big stride after all while the U.S. is still dragging its feet on the debt ceiling. That's why the dollar is under pressure now," said a dealer at a Japanese bank in Tokyo.

Markets cheered the package as it was far more ambitious than expected earlier this week. The euro climbed to a two-week high of $1.4440 EUR=before steadying around $1.4390.

The euro is around the level of the 50 percent retracement of its decline from early May until last week, in which worry about the euro zone debt crisis played a big role.

European leaders have agreed on a bailout package that would make it easier for Greece to reduce debt more sustainably by easing terms of loans and by making Greek bond investors shoulder some of the burden. [nL6E7IK2VL] [nN1E76K237]

The leaders also made provisions for limiting the damage if, as seems likely, credit rating agencies declare Greece to be in temporary default, with the European Central Bank now dropping its opposition to a selective default of Greek debt.

The region's rescue fund, the European Financial Stability Facility, will be allowed to buy bonds in the secondary market if the ECB deems that necessary to fight the crisis.

Euro bears say it is yet to be seen if the measures can stabilise other indebted countries and stave off contagion to the currency bloc's bigger economies.

Still, it was enough to prompt short-covering in the euro.

"It's probably not a long-term solution but it provides some clarity ... At the end of the day it doesn't address key issues, but it will contain contagion," said Grant Turley, a strategist at ANZ in Sydney.

The common currency could target around $1.4455, where charts show an Elliot wave equality target as well as the top of the Ichimoku cloud, and then $1.4520, a 61.8 percent retracement of its decline since May.

Implied volatilities on euro/dollar options dropped as fears receded that disappointment over the summit could pummel the euro. One-month volatility EUR1MO= fell to around 12 percent from above 13 percent before the summit.

The single currency also rose to around 1.1765 Swiss francs EURCHF=R, 3.5 percent above the record low of 1.1365 francs hit at the start of the week.

DOLLAR INDEX BELOW TRENDLINE

As the euro recovered, the dollar index .DXY wallowed near a six-week low after posting its biggest daily drop of the year on Thursday.

The index stood at 74.096, near Thursday's low of 73.889, having clearly broken below its trendline support since May.

The U.S. currency also slipped to a four-month trough of 78.22 yen JPY=, the lowest since joint G7 intervention in mid-March, before recovering to 78.58 yen.

Still, few traders think Japan is ready to intervene in the near future, in part because the yen is still off recent peaks against most currencies except the dollar.

Japanese margin traders have a huge long position in the dollar, which means any intervention would likely only invite their profit-taking and have a limited impact.

Pricing of dollar/yen options also suggested limited expectations of Japan's intervention with scant demand for yen puts, whose value would gain sharply in the event of yen selling intervention.

Their risk reversal spreads, which measure the price gap between yen calls and yen puts, rose to the highest level in favour of yen calls, pointing to limited demand for yen puts.

That contrasts with the days following Japan's intervention last September, when many market players bought yen puts for hedging.

While enlivened risk appetite after the euro-zone debt deal and the entrenched perception that U.S. monetary policy will remain loose for the foreseeable future are the main damper on the currency, some traders say the dollar was not helped by uncertainty over wrangling in Washington on the debt ceiling.

While efforts to craft a $3 trillion deficit-reduction deal gained traction on Thursday, the White House and Republicans have not broken their impasse over higher taxes, which are opposed by the Republicans, who control the lower house.

Although most market players expect some sort of deal by the Aug. 2 deadline to raise the $14.3 trillion debt ceiling and avoid default, some worry that failure to reach a major deficit reduction plan could lead to a credit downgrading.

WRAPUP 1-US debt talks begin critical phase

WASHINGTON, July 22 (Reuters) - Efforts to avoid an unprecedented U.S. default enter crunch time on Friday, with President Barack Obama and top lawmakers engaged in a sometimes chaotic drive to strike a sweeping deficit-reduction deal.

With the clock ticking toward an Aug. 2 deadline to raise the U.S. debt ceiling, Obama and the senior Republican in Congress, House Speaker John Boehner, worked toward a plan that could include up to $3 trillion in spending cuts but might leave tax reform for later, congressional aides said.

The main obstacle remained the issue of tax increases that Obama's Democrats demand and Republicans vehemently oppose. There were conflicting accounts of how and when higher revenue might kick in, and the White House vowed there would be no deal without this.

Negotiations have whipsawed between competing and even conflicting options, and leaders on both sides face resistance within their own ranks to some ideas now gaining traction.

"There will be plenty of haggling over the details of all these plans in the days ahead," Obama said in an appeal for compromise in a USA Today opinion piece. "But right now, we have the opportunity to do something big and meaningful."

The focus is on what congressional sources say is shaping up as a wide-ranging package of deficit cuts over 10 years, something many in Washington hope will help save America's triple-A credit rating. Rating agencies have threatened a U.S. bond downgrade without a comprehensive deficit-cutting deal.

Negotiators have struggled to break their impasse and winnow options for raising the government's $14.3 trillion debt ceiling. Failure to reach a deal to increase U.S. borrowing authority would render the world's biggesteconomy unable to pay all of its bills. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Full coverage of U.S. budget and debt [ID:nUSBUDGET]

Possible outcomes for U.S. debt talks [ID:nN1E76I10Y]

Anything possible if U.S. downgraded [ID:nN1E76I1M8]

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But confusion has grown amid a patchwork of proposals aimed at finding what a senior Democratic aide called the "magic formula" for resolving the crisis, which has dominated Washington's agenda for weeks.

BIPARTISAN RESISTANCE

"Frankly, we've looked at a half a dozen fallback plans, none of which are all that appetizing," Boehner -- struggling with Tea Party lawmakers largely opposed to any compromise with Obama -- told conservative talk-show host Rush Limbaugh.

Some Democrats have complained about what they see as Obama too willing to make concessions on social spending cuts and unhappy if he agrees to no immediate tax increases.

A gathering of Democratic congressional leaders at the White House late on Thursday was meant to not only inform them of developments but to possibly placate their concerns.

Friday is essentially the start of crunch time. The White House initially set a July 22 target for a deal that would leave enough time to get it through the legislative process. But it has backed off that timeframe in recent days with both sides still far apart on the issues.

If Congress fails to raise the debt ceiling in time, the United States would default on its obligations, possibly plunging the country back into recession and sparking a crisis in financial marketsworldwide.

White House spokesman Jay Carney said earlier there had been momentum toward a "balanced" deficit agreement, but he insisted: "We are not close to a deal."

Despite the gulf between the two sides, reports that negotiators were starting to close in a debt deal helped fuel a rally in U.S. and world stocks on Thursday.

What remained clear was that both sides at still at odds over the thorniest issue on the table -- taxes.

Obama told National Public Radio any deal must include some tax increases alongside defense and other spending cuts. Many Republicans vow to oppose any tax hikes, while most Democrats insist on higher taxes for wealthier Americans.

While they could leave comprehensive tax reform for later, Obama and Congress could agree to revenue increases that would end some select tax breaks, such as special breaks enjoyed by ethanol blenders, some Wall Street investors and companies that operate corporate jets, congressional sources said.

L&T Finance Sets Date for IPO

MUMBAI –L&T Finance Holdings Ltd. will launch its initial public offering on July 27 in the largest listing in India so far this year and a key test for investor appetite for a big-ticket share sale in a moribund market.

The share sale is also an important part of Indian engineering giant Larsen & Toubro Ltd.'s plan to spin off some of its non-core businesses into self-sustaining units with independent access to capital markets.

The float, which will raise up to 12.45 billion ($280.4 million), will be in addition to an institutional share placement of 3.30 billion rupees in early July, taking the total funds raised through the exercise to as much as 15.75 billion rupees. That's a little less than the up to 17.50 billion rupees the company had indicated in its draft offer document earlier in the year, as it scaled down its plan due to weak demand in primary markets.

The non-bank lender may accept bids from cornerstone investors a day before the launch of the issue, which runs until July 29, it said in the offer document.

L&T Finance had filed a draft prospectus in September 2010 but delayed its IPO beyond the initial targeted launch of March 2011 as volatile local stock markets soured investor appetite.

The issue, just the third listing in India beyond $100 million in size this year, will be a key barometer of demand in what has so far been a weak IPO market. Dealogic data shows a 52% fall in primary equity deal volumes so far this year.

Finance companies in particular were under pressure as aggressive monetary tightening by India's central bank coupled with moderating economic growth have weighed on investor demand.

However, even another hike at the central bank's rate-setting meeting on July 26, a day before the issue's launch, is unlikely to deter investors from buying into the shares, said S. Tulsian, a broker at the Bombay Stock Exchange. Tulsian added that parent Larsen & Toubro's past performance could encourage retail investors to buy into the latest offering by the group.

JM Financial Consultants Pvt., Citigroup Global Markets India Pvt., HSBC Securities and Capital Markets India Pvt. Barclays Securities (India) Pvt., Credit Suisse Securities (India) Pvt., and Equirus Capital Pvt. are managing the issue.

The non-bank lender may accept bids from cornerstone investors a day before the issue opens, it said in the offer document. The offer will close on July 29. L&T Finance has already raised 3.3 billion rupees in an institutional share placement ahead of the public offering.

JM Financial Consultants Pvt., Citigroup Global Markets India Pvt., HSBC Securities and Capital Markets India Pvt., Barclays Securities (India) Pvt., Credit Suisse Securities (India) Pvt., and Equirus Capital Pvt. are managing the issue.

Oil Gains in New York as U.S. Supplies, China Demand Counter Europe Debt

Oil climbed in New York as signs of shrinking crude stockpiles in the U.S. and rising demand in China countered speculation that Europe’s debt crisis will temper fuel demand.
Futures advanced as much as 0.5 percent before a report tomorrow that may show U.S. inventories dropped a seventh week. Prices also rose after China said its apparent fuel consumption rose 7.2 percent in the first half. Crude slipped yesterday amid concern Europe’s leaders will be unable to agree on steps to contain the region’s debt crisis at a summit this week.
“It’s summer drive-time, inventories are coming back a bit and people are suggesting that the economy is not going to falter,” said Jonathan Barratt, a managing director of Commodity Broking Services Pty in Sydney, who predicts oil in New York will average $100 a barrel this year. “The market’s not decided as to what the consequences are to oil yet” from the debt situation, he said.
Crude for August delivery gained as much as 45 cents to $96.38 a barrel in electronic trading on the New York Mercantile Exchange, and was at $96.18 at 12:08 p.m. Sydney time. The contract yesterday declined $1.31 to $95.93, the lowest since July 14. Prices are up 26 percent the past year. The more actively traded September future climbed 22 cents to $96.47.
Brent oil for September settlement rose as much as 45 cents, or 0.4 percent, to $116.50 a barrel on the ICE Futures Europe exchange. Prices are 54 percent higher the past year.

Crude Stockpiles

Brent crude may climb to more than $123 a barrel if prices can exceed a series of “swing highs,” according to technical analysts FuturesTechs.com Ltd. The contract may advance to $123.22 if it breaks through a sequence of pivot points formed by earlier peaks, beginning at $119.86 to $119.87, FuturesTechs said in a report yesterday.
The Energy Department report may show U.S. crude supplies fell 1.5 million barrels for a seventh week in the seven days ended July 15, according to the median of 10 analyst estimates in a Bloomberg News survey. Gasoline inventories probably slid 100,000 barrels from 211.7 million, the survey shows.
Bret, the second tropical storm of the Atlantic hurricane season, is moving northeast away from the coast of Florida on a track that will take it out to sea, the U.S. National Hurricane Center said. In the eastern Pacific, Tropical Storm Dora formed yesterday about 400 miles (644 kilometers) south-southeast of Salina Cruz, Mexico, the center said.
International Energy Agency member nations are likely to decide against offering more oil after last month’s stockpile release failed to curb prices and Middle East output rose, according to a Bloomberg News survey. The IEA will say on about July 23 whether they will continue emergency sales to make up for supply choked off by the Libyan conflict.