FOREX-ECB on hold, news conference in focus; dollar struggles

Reuters

* ECB keeps rates unchanged, press conference at 1230 GMTeyed

* Markets expect ECB LTRO later this year

* Berlusconi to support Italian PM Letta in confidence vote

* Dollar under pressure given US political deadlock

By Anooja Debnath

LONDON, Oct 2 (Reuters) - The euro held steady against thedollar on Wednesday ahead of a European Central Bank newsconference where President Mario Draghi will be watched forsigns of any further stimulus.

The ECB kept its main refinancing and deposit rates on holdas was widely expected.

The dollar remained subdued as the ongoing politicalwrangling in the U.S., which has led to a partial governmentshutdown showed no signs of a resolution.

The euro was flat at 1.3521. It had hit an eightmonth high of $1.3589 in the previous session. Support was citedat $1.3453, the high seen in August.

Draghi's conference will be closely watched for signs thebank may move to pump more ultra-cheap funds into the market,possibly by the year-end.

"There is a small negative risk to the downside for the euroas the ECB is likely to sound quite dovish in its pressconference," said Adam Cole, global head of FX strategy at RBCCapital Markets.

Some analysts said Draghi could stress the prospect ofmaking more long-term loans available as a means of temperingthe euro's appreciation.

Peter Kinsella, currency strategist at Commerzbank said thatthe ECB might point to recent positive euro zone data but wouldtry to curb any optimism.

"It is clear from their forward guidance a few of months agothat they want to keep the euro at reasonably lower levels."

In a reflection of heightened uncertainty in the marketone-month euro/dollar implied volatility, a measureof expected price swings and derived from option prices, rose toaround 7.60, its highest since early September.

The euro also found some support on growing signs ItalianPrime Minister Enrico Letta will survive a confidence vote lateron Wednesday.

Italian centre-right leader Silvio Berlusconi backtrackedfrom his attempts to bring down the government and told theSenate his party would support Letta.

"Italian political concerns seem to be blowing overalready... assuming the government survives today this minipolitical crisis appears to be mostly over," Cole said.

POLITICAL GRIDLOCK

In the U.S., concerns over a partial government shutdownkept the dollar under pressure. Its index was last down0.1 percent at 80.152, having fallen to a near eight-month lowof 79.864 on Tuesday.

The greenback was down 0.5 percent at 97.49 yen. Ithad earlier slid to a one month low of 97.305 yen.

The yen, which tends to benefit in times of market turmoil,also rose against the euro. The single currency wasdown 0.6 percent at 131.71. Long-term trendline support wascited around 131.55/60 according to CitiFX Wire, a news servicefor Citi's clients.

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