News in Brief

• The euro managed to push higher against the dollar yesterday, but failed to extend its rally much past the $1.28 level. Much of the momentum was based on upbeat economic data out of China and Germany and well-received auctions for short-term bills in Europe.
• China's GDP rose 8.9% from a year earlier. German economic expectations also topped forecasts, giving rise to some brief optimism. Rounding off the relatively positive developments was Spain's successful sale of EUR4.88 billion in 12 and 18-month treasury bills. Greece sold EUR1.625 billion of 13-week bills and the European Financial Stability Facility, the region's bailout fund, was also able to sell short-term bills without too much fuss. The yield on the notes was 0.2664%, near where French bills of the same maturity trade.
• However, as the New York session came on line, dealers were using these elevated euro levels to put fresh euro "shorts" on as concerns grow over the region's debt crisis. Additionally, further announcements from Standard & Poor's, which Friday downgraded France and eight other euro zone members, is expected and this potential action will pile further pressure on the single currency. "There's room for more downgrades of European banks and investors are using any pop in the euro as an opportunity to sell," comments from Standard Chartered Bank.
• The tougher test for Europe's debt problems will come later in the week when Spain and France are scheduled to sell long-term debt, which carries greater default risk and will require higher yields to sell. Those sales could provide the best indicator so far of how investors feel about S&P's mass downgrades last week and whether the region's debt crisis is stabilizing.
• On the UK front, a slowdown in the annual rate of inflation in the UK in December indicates inflation is poised to recede in 2012 as the Bank of England expects, BOE policy maker Adam Posen said yesterday. Inflation slowed to 4.2% in December from 4.8% in November, official statistics showed. The central bank expects it to slow further this year as temporary factors boosting prices lose influence and weakness in the economy bears down on wages and prices. "We are on the path," consistent with that forecast, Posen said during a speech in London.
• Overnight. The euro rose against the dollar and the yen in Asia as a report that China is likely to ease monetary policy improved investor sentiment and prompted buying of the risk-sensitive European unit. China may cut its banks reserve requirement ratio by 50 basis points by the end of January, China's Economic Information newspaper commented, citing industry exports. With such easing likely to result in more money in the market, traders said it will be easier for investors to buy riskier, euro-denominated assets instead of vehicles denominated in safe-haven dollars and yen. Given this development, short-term-focused investors reduced euro-selling positions they have been building.
• Traders will pay attention to an auction of Portugal's short-term bills later in the day, as well as the expected resumption of Greece's talks with private creditors, which traders said would likely be euro-negative factors. Unlike recent well-bid European bond auctions, Portugal's may not be well-received, as its bonds are now below investment grade for many companies, limiting the number of investors who will participate in the tender. Also, Greece is trying to get private creditors, like banks, insurance companies and hedge funds to accept a deal to forego 50% of their holdings of the country's debt. Analysts say it is important that a conclusion be reached by Greece's large bond redemption for March 20.