Tue Sep 25, 2012 9:58am EDT
* Bundesbank checking legality of ECB bond-buying - report * ECB official defends legality of buying crisis bonds * Euro rebounds from one-week low, may target 200-DMA at $1.2827 * Spain, Greece worries weigh on euro By Julie Haviv NEW YORK, Sept 25 (Reuters) - The euro edged higher against the dollar on Tuesday, rebounding from a more than one-week low brought on by a media report that Bundesbank lawyers were checking the legality of the European Central Bank's bond-buying plan. German tabloid Bild said the issue of whether the ECB's plans to buy the bonds of indebted countries violates the ban in EU treaties on direct financing of state deficits could be referred to the European Court of Justice. The euro recovered losses after an ally of Germany's powerful Bundesbank at the ECB defended the new bond-buying program. Ewald Nowotny, an ECB governing council member and Austria's central bank governor, said the ECB was on a firm footing with its plan to stem the euro zone crisis. Senior ECB sources, meanwhile, have said the bank's legal department studied the legality of bond-buying carefully before the Sept. 6 decision to launch the program. "This is nothing of the magnitude of the German Constitutional Court decision. But when the euro zone's most significant central bank is being skeptical it doesn't encourage international investors to be holders of euros," said Jeremy Stretch, head of currency strategy at CIBC. The euro last traded at $1.2952, up 0.2 percent, after dropping to $1.2885, its lowest since Sept. 13. Further losses could see it target the 200-day moving average at $1.2827. The euro should remain under pressure if Spain drags its feet over requesting an international bailout. This must happen in order for the ECB to begin buying its bonds and, until it does, analysts say the euro is likely to weaken. Last week, the euro hit a 4-1/2-month peak of $1.3169 on optimism as a result of the ECB plan and after the Federal Reserve announced aggressive quantitative easing to boost a sluggish U.S. economy. "In the very short term the 200-day moving average is the obvious trigger point. If that gives way it could fall to $1.2760/70 and then we would be back to the pre-ECB rally levels," CIBC's Stretch said. GREECE STILL A CONCERN Worries about the size of Greece's deficit also weighed on the euro, with German's Der Spiegel magazine reporting it could be 20 billion euros, nearly double previous estimates. "Fears about Europe's situation remain among investors, with the focus mostly on Spain, but Greece is also still a concern," said Kimihiko Tomita, head of foreign exchange for State Street Global Markets in Tokyo. This week, Spain is expected to unveil new structural reforms and its draft budget plan for 2013, with investors also awaiting results of stress tests on its banking sector. A Moody's credit rating review of Spain is also expected, when it could downgrade Spanish debt to junk status. Meanwhile, concerns remain about economic fragility in Europe's stronger states. A weaker-than-forecast German business survey on Monday was followed on Tuesday by a survey showing French business morale stayed low in September. The dollar pared losses against the yen after U.S. data showed single-family home prices rose for a sixth month in a row in July, though the improvement was not as strong as expected. The dollar was last down 0.2 percent at 77.72 yen. It hit a one-month high of 79.22 yen on Sept. 19 after the Bank of Japan announced further monetary easing. Japanese Finance Minister Jun Azumi told reporters he stood ready to take firm measures on currencies as long as he was finance minister. He said there would be no vacuum in currency policy due to his pending departure to take a new position in the ruling Democratic Party.