FOREX-Euro rises after above-forecast euro zone PMI data
* Euro lifted by above-forecast euro zone services PMI
* Still vulnerable to Spain, Italy worries
* But euro uptrend seen intact, traders look to buy on dips
LONDON, Feb 5 (Reuters) - The euro rose on Tuesday, helped to renewed worries about political uncertainty in Spain and Italy. Euro zone data on Tuesday showed the services sector improving more than expected in January. The purchasing managers' index for services in Germany posted its biggest one-month rise since August 2009 while in Spain it contracted at its slowest pace since June 2011.
That helped the euro rise 0.1 percent to $1.3522. It had earlier hit a low of $1.3458 as political uncertainty in Spain, where the prime minister is facing calls to resign, and in Italy, which holds a general election later this month, prompted investors to take profits on recent strong gains.
Analysts also said the euro could succumb to more selling before a European Central Bank meeting on Thursday. But they were wary of saying the euro's falls on Monday, when it lost nearly 1 percent against the dollar, marked a reversal of the trend seen in recent weeks under which the currency has benefited from ebbing worries about the euro zone. The euro hit a 14-month high of $1.3711 last week. "There is a correction (in the euro) on bad news out of Italy and Spain but it's also due to positioning ... The euro had become technically overbought," said Arne Lohmann Rasmussen, head of FX research at Danske Bank in Copenhagen. "The underlying trend is still there, there is still a recovery (in the euro zone)," he said, adding that Danske Bank were advising clients to look at establishing new long euro positions against the dollar and other currencies. He said the euro could drop further on any downbeat comments from ECB President Mario Draghi on Thursday, however. Traders said the euro might extend falls if it breaks below reported stop loss orders around $1.3450 and $1.3415. Chart support was seen at $1.3414, a low hit on January 29, and at the 21-day moving average at $1.3376. "Some euro zone countries, such as Spain, are still perceived to be fragile and this shows that their vulnerability could come to surface from time to time," said Katsunori Kitakura, associate general manager of market making at Sumitomo Mitsui Trust Bank in Tokyo, referring to Monday's sell-off. Potential political upheavals in Italy and Sain are not likely to derail the euro zone's efforts to fix its debt problems, however, traders and analysts said. "The uptrend is still in place. People are looking tentatively to get long again ... There is a general 'buy dips' mentality," a London-based trader said.
YEN EDGES LOWER The euro also turned higher against the low-yielding yen, which was expected to remain weak on expectations of aggressive monetary easing in Japan. The euro gained 0.5 percent to 125.51 yen, although it was still below a 34-month high of 126.97 hit last Friday. The dollar also rose 0.4 percent to 92.77 yen, edging back towards a 33-month peak of 93.185 yen hit on Monday. Some traders believe the currency pair is repeating its trading pattern of recent weeks, where it falls early in the week and recovers in the latter half. The higher-yielding Australian dollar underperformed, however. It was down 0.2 percent at $1.0413 after the Reserve Bank of Australia held interest rates but left the door open to more cuts in the months to come.