(Reuters) - The euro nursed modest losses in Asia Tuesday, while the yen held on to overnight gains ahead of another flood of cheap cash from the European Central Bank that could bolster risk appetite and put the yen under pressure again.
News that Standard & Poor's cut its ratings on Greece to 'selective default' barely lifted an eyebrow as Athens' efforts to lighten its debt burden was largely expected to trigger the downgrade, traders said.
The euro stood at $1.3392 versus $1.3397 late in New York, having retreated from a near three-month peak of $1.3486 set Friday. Immediate support is seen in the $1.3355/64 area, recent lows, with $1.3291 marking the 38.2 percent retracement of the Feb 16-24 rise.
Against the yen, the single currency slid to 107.90 from a four-month peak of 109.90 touched on Monday.
That helped the yen halt its broad slide against other currencies as well. The dollar fell to 80.44 yen, off a nine-month peak of 81.61 set on Monday.
Still, the greenback was up nearly 6 percent this month against the Japanese currency, which has been on the ropes since the Bank of Japan surprised by easing monetary policy.
Japan's trade deficit, interest rate differentials, an improving U.S. economy and higher oil prices have also conspired to pull the yen lower.
Traders said these factors remained intact and the yen's bounce overnight, along with the euro's pullback, were just a correction, believing that risk sentiment will be supported by the ECB's liquidity injection.
A Reuters poll of money traders showed banks will take up half a trillion euros of ECB funds, roughly the same as the previous offering last year. This is seen buying more time for authorities to sort out the sovereign debt crisis.
Our best guess is in the 300-400 billion euros region and we would anticipate any short-term market reaction will be based on how much this take-up supports the recent risk rally, BNP Paribas analysts said.
To this end, we would expect yen crosses to weaken further on a figure at or above our 'guess-timate', and to strengthen if the figure is announced around the 100-200 billion euros mark.
News of Greece's downgrade by S&P came just hours after the German parliament endorsed a second bailout for the debt-laden country with a comfortable 496-90 victory.
S&P said if Greece's debt exchange drew the required number of acceptances it would upgrade its rating to CCC. However, the lack of a deal, which it expected by March 12, would likely result in an outright payment default.
The pullback in the euro helped push the dollar up 0.3 percent against a basket of major currencies .DXY.
Commodity currencies clawed back some of their recent losses against the euro, but relinquished some gains on the yen. Against the greenback, the Australian dollar sped up to $1.0750, from Monday's low of $1.0650, but remained in the recent range of $1.0600/$1.0845.
Japanese retail sales data is due later on Tuesday, followed by German inflation and euro zone economic sentiment. Focus will also be on Italy's bond sale worth an estimated 6.25 billion euros.
(Editing by Wayne Cole)