* Euro supported by hopes of larger aid package * Spain ratings downgrade shrugged aside * But traders still looking to sell euro rallies (Adds quote, detail, changes dateline, previous TOKYO) By Neal Armstrong
LONDON, April 29 (Reuters) - The euro steadied on Thursday, after rebounding from a one-year low the previous day, as reports that a planned aid deal for Greece would be bigger than initially thought tempered selling of the single currency.
The euro tumbled to a one-year low versus the dollar of $1.3113 on Wednesday, pushed lower after Standard & Poor's cut Spain's credit rating by one notch to AA, following downgrades of Greek and Portuguese debt a day before.
For story on Spain's rating, click on [ID:nLDE63R2J0].
But the low was hit only briefly, with investors focusing on comments from a German parliamentarian that the aid package for Greece would be worth 100 to 120 billion euros ($132.6 billion-$158.8 billion) over three years. [ID:nBAT005353]
This also cooled heavy selling in thin liquidity that had seen two-year Greek bond yields soar to 38 percent. [ID:nLDE63R2PN]
Uncertainty over the size and timing of any aid package for highly-indebted Greece has weighed heavily on the euro.
The market sees a bigger package for Greece, covering three years, as a bigger backstop. This is helping to address some investor fears and giving some support for the euro, said Kenneth Broux, market economist at Lloyds Banking Group.
But in the bigger picture the euro remains under pressure and I'd continue to sell rallies, he said.
At 0730 GMT, the euro was trading broadly flat versus the dollar at $1.3200.
S&P's downgrade of Spain to a still robust AA from AA+ has been shrugged aside by the market, helped by Fitch reaffirming Spain's AAA rating and stable outlook, Commerzbank analysts said in a note.
Traders said euro selling was also limited by a quiet Asian session, with Japanese markets closed for Golden Week, while Asian sovereign demand was helping to prop up the currency.
A statement from the U.S. Federal Reserve, which offered a more upbeat view of the U.S. economy, boosted risk sentiment.
At the conclusion of its two-day rate setting committee meeting, the Fed maintained its pledge to keep interest rates low for an extended period and slightly upgraded some of its economic forecasts. [ID:nN27125552]
The dollar was trading close to flat versus a currency basket .DXY, after rallying to a near one-year high of 82.714 on Wednesday.
The yen was broadly flat versus the dollar at 94.10 yen, with euro/yen EURJPY=R steady at 124.25 yen.
Traders said a focus would be an Italian bond auction.
The Italian bond auction is worth keeping a close eye on with the increasing risk premium being demanded now. It could be a challenge for Italy to sell its paper, said Broux at Lloyds.
The New Zealand dollar was steady at $0.7180, after initially falling when the central bank delivered a slightly less hawkish statement than some had expected. [ID:nSGE63R0NO]
(Additional reporting by Satomi Noguchi, Editing by Nigel Stephenson)