Market Review - 29/11/2011 22:02 All times in GMT

Euro pares intra-day gains after European Central Bank fails to sterilise bond purchases

The single currency pared its intra-day gains on Tuesday after the European Central Bank said it didn't fully sterilise its government-bond purchases. Earlier in the day, euro rose sharply after Italy's bond auction received good demand.

The single currency strengthened from a session low at 1.3286 in Asian morning to 1.3373 ahead of European opening on hopes that European officials will make some progress in tackling their debt crisis as EU Finance Ministers began their 2-day meeting in Brussels. Despite a pullback to 1.3315, euro rallied to session high of 1.3442 in European morning after Italy received good demand at its bond auction.

Italy raised 7.5 billion euros at its bond auction vs a target range of 5-8 billion. Italian 3-year, 8-year and 10-year bonds were issued at 7.89%, 7.28% and 7.56% respectively.

Later in New York morning, euro pared intra-day gains and tumbled to 1.3295 after the European Central Bank failed to attract sufficient deposits from banks to sterilise its bond purchases from debt-ridden eurozone countries. However, the single currency briefly recovered to 1.3370 after the release of better-than-expected U.S. consumer confidence data boosted risk appetite before moving sideways near New York close.

ECB failed to fully sterilise bond purchases as it absorbed 194.199 billion euros in 7-day deposits, short of its target of 203.5 billion euros. U.S. consumer confidence jumped to 56.0 from 40.9 the month before and a forecast of 46.4.

Although the British pound edged lower to a session low at 1.5469 in Asian morning, cable recovered to 1.5534 in tandem with euro ahead of European opening and rose sharply to an intra-day high at 1.5658 in European morning on active cross-buying of sterling especially against euro (eur/gbp tumbled from 0.8610 to 0.8529) and later traded narrowly throughout New York session.

Versus the yen, the greenback fell from a one-month high session high of 78.29 in Asian morning to an intra-day low at 77.62 in European morning on dollar's broad-based weakness before recovering to around 77.95 ahead of New York close.

In other news, an EU diplomat said 'eurozone Finance Ministers agree to release 8 billion euros aid payment to Greece.' Dutch Finance Minister JanKees de Jager said 'increased EFSF bailout fund will still not be big enough, IMF needs to take a larger role.'

On the data front, UK nationwide house prices rose more than expected in Oct, increasing 0.4% m/m and 1.6% y/y vs forecasts of 0.0% and 1.3%, respectively. Eurozone consumer sentiment was -20.4 in Nov from -19.9 in Oct. Business climate and economic sentiment were worse than expected at -0.44 and 93.7 vs forecasts of -0.30 and 94.0, respectively.

Data to be released on Wednesday:

Japan manufacturing PMI, industrial production, construction orders, housing starts, UK gfk survey, Germany unemployment, EU HICP, unemployment, Swiss KOF indicator, Canada GDP, PPI, U.S. employment, productivity, labor cost, Chicago PMI, pending home sales.