(Reuters) - The euro advanced for a second straight session on Tuesday on speculation the European Central Bank could lend money to the International Monetary Fund to help Italy cope with the debt crisis.
Belgian Finance Minister Didier Reynders said European finance officials will discuss the possibility of the ECB lending to the IMF. Finance officials will offer some proposals, he said, but it is up to the ECB to decide.
A rebound in U.S. consumer confidence in November also spurred investors' appetite for risk, boosting the Australian, Canadian, and New Zealand dollars, as well as the euro. The Conference Board, an industry group, reported its index of U.S. consumer attitudes jumped to 56.0 this month, up from an upwardly revised 40.9 in October.
The euro is showing a bit more support on the downside, and based on the headlines it seems that European authorities are once again mobilizing their resources to stem the European crisis, said Richard Franulovich, senior currency strategist, at Westpac in new York.
Just on the hourly charts, the euro is running into support at $1.33 and if you look at stocks and riskier currencies such as the Aussie and Kiwi, they're still pretty bid, he said, referring to the Australian and New Zealand dollars.
In midday New York trading, the euro was up 0.3 percent at $1.33405, after earlier rising nearly 1 percent to a session high of $1.34426, initially on hedge fund buying.
The euro was earlier boosted after Italy successfully sold at auction all the three-year government debt that was on tap, though Italy had to pay record high yields of nearly 8 percent. Italy sold 7.5 billion euros in three- and 10-year government bonds.
The auction, however, was overshadowed by news on the ECB operations. The ECB failed to attract enough deposits from banks that would neutralize its purchases of bonds from debt-ridden euro zone countries, which investors took to mean that the central bank had effectively launched a round of quantitative easing because it increased the amount of euros in the market.
The ECB was able to drain just over 194 billion euros, short of the 203.5 billion euros in bond purchases. The shortfall was the ECB's first since May.
Marc Chandler, global head of FX strategy at Brown Brothers Harriman, was among analysts who believed that it was not quantitative easing at all, adding that the imbalance must occur on a continued basis to be considered monetary easing.
It could be a host of other factors, said Chandler. It could be the low yield as one reason why the ECB failed to attract deposits or it could be the tenor of those deposits. So we should reserve judgment until next week.
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Investors were wary of holding too many euros before European policy makers are expected to approve details for scaling up the region's rescue fund, the European Financial Stability Facility, later in the day. Policy makers are also expected to release a vital aid lifeline for Greece.
Strategists warned that the euro remained vulnerable to selling unless investors see concrete action, given they have been disappointed by officials in the past.
Germany and France are reported to be aiming to outline proposals for a fiscal union before a European Union summit on December 9. A growing number of investors see a fiscal union as perhaps the last chance to avert a breakdown of the common currency area.
Perceived riskier currencies rallied on higher equities and the Italian auction results.
The Australian dollar climbed nearly 2 percent to US$1.0078, before pulling back to US$01.0020 after it was unable to break above technical resistance seen around the 21- and 55-day moving averages around US$1.0096-8.
The dollar fell broadly, falling 0.4 percent versus a currency basket .DXY, after earlier gains in the euro pushed most other major currencies higher against the safe-haven U.S. currency.