FOREX-Euro higher but gains seen limited ahead of ECB meeting
* Upward revision to PMI data lifts euro vs dollar
* Investors still wary of ECB, Italian political situation
* Yen strengthens after BOJ confirmation hearings
NEW YORK, March 5 (Reuters) - The euro was rose against the dollar on Tuesday bolstered by better-than-expected euro zone economic data though gains were capped as investors weighed the chances the ECB will cut interest rates this week. Euro weakness is seen persisting as the currency bloc's economy continues to falter, raising the risk the European Central Bank will ease policy in coming months. The single currency climbed to a session high of $1.3075 after a euro zone composite PMI survey came in at 47.9, marginally better than the preliminary reading of 47.3. Euro zone retail sales data also beat expectations and provided a slight boost to the single currency.
The "euro is slightly stronger, up just 0.1 percent since yesterday's close but still trading within Friday's range," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto. "Fundamental data was encouraging, with retail sales surprising higher." The euro was last up 0.1 percent at $1.3036, giving up the early gains, with reported selling by macro hedge funds. The euro zone PMI remained well below the 50 mark dividing growth from contraction, however, and dipped from the previous month. The euro has been unable to make decisive rebounds as sellers emerged at higher levels, and option expiries at $1.3025 and $1.3050 could keep the currency pinned around these levels. Technical charts showed resistance at the 100-day simple moving average at $1.3127 But the larger focus remains the ECB policy announcement on Thursday. "Even if the ECB does not surprise already dovish expectations, we still have the risk of further deterioration in data bringing forward bets of further cuts as soon as April." said Valentin Marinov, head of European G10 FX strategy at Citi in London. The euro has also been hurt by political concerns in Italy. Last week's election left no group with a working majority in parliament and that meant Italy could be inching closer towards another election within months. Marinov said investor uncertainty about Italy could escalate if there is no government in place before the end of the month, adding he expected the euro to target $1.28.
YEN RISES The yen rose against the dollar and euro after confirmation hearings of the government's nominees for two Bank of Japan deputy governor posts, which had been widely expected by the market. The Japanese government has signalled it wants the BOJ to pursue aggressive monetary easing to stimulate the economy, a stance that has weighed heavily on the yen since November. The dollar fell 0.3 percent to 93.19 yen, pulling away from a high of 94.76 yen struck on Feb. 25, which was the dollar's highest level against the yen since May 2010. The euro dipped 0.2 percent to 121.47 yen. Analysts said the dollar's drop against the yen was mostly a reflection of market positioning as traders were probably long dollar/yen going into Tuesday's confirmation hearings. Markets are now waiting for some actual policy action after such aggressive easing rhetoric for the dollar to make significant gains, they said. Some strategists, however, said that the dollar's ascent against the yen was intact and dips would provide a good chance to buy the pair. "Overall, we continue to view near-term pull-backs into the 91.80 yen area as providing buying opportunities," analysts at Morgan Stanley said in a note.