Tue Oct 2, 2012 9:58am EDT

* Euro rangebound as investors await developments in Spain
    * Bids from Asian central banks cited at $1.2880
    * Aussie dollar falls after RBA rate cut

    By Gertrude Chavez-Dreyfuss

    NEW YORK, Oct 2 (Reuters) - The euro rose for a second
straight session on Tuesday, pulling further away from recent
three-week lows against the dollar on growing expectations the
euro zone's fourth-largest economy Spain is ready to seek a
bailout. 
    European officials told Reuters on Monday Spain was ready to
request a euro zone bailout for its public finances as early as
next weekend, but Germany had signaled that it should hold off.

    A request for a bailout is viewed as positive for Spain and
therefore the euro because it would trigger purchases of Spanish
debt by the European Central Bank that could lower the country's
borrowing costs. It also removes another layer of uncertainty in
the region's three-year old debt crisis.
    "(Spain's) recent budget proposal...seemed intentionally
designed with a bailout request in mind and the market is
assuming it's just a question of when," said Brad Bechtel,
managing director at Faros Trading in Stamford, Connecticut. 
    "The sooner the better for markets as every hint of a
looming request sends markets higher." 
    But uncertainty over the timing of the request kept
investors on edge with many selling the euro at higher levels.
Another risk factor is rating agency Moody's soon-to-be
announced review of Spain's rating, which could see it cut to
junk status.
    Joe Manimbo, senior market analyst at Western Union Business
Solutions in Washington, added that worries about euro zone
growth would keep the ECB in easing mode, suggesting any euro
upside may be modest.
    Analysts said safe-haven currencies like the U.S. dollar and
the yen would be in demand until Madrid asked for aid. 
    The euro was 0.4 percent higher on the day at
$1.2937, rising from Monday's low near $1.2802, its lowest in
three weeks. Market players reported bids from Asian central
banks at around $1.2880 with offers to sell at $1.2950,
confining the currency to a range. 
    It has eased from a four-month peak of $1.3169 hit in
mid-September after the ECB announced its bond-buying plan to
lower yields on peripheral euro zone debt and the U.S. Federal
Reserve teed up another round of monetary easing. 
    While a request for a bailout by Spain could see a
short-term rally in the euro, some money managers are wary of
the single currency in the medium to long term, given gloomy
economic prospects, tough austerity measures and rising
unemployment in the euro zone. 
    "From a macro perspective, we would look to short the euro
against the dollar into any move higher as there is no growth in
the euro zone," said Howard Jones, adviser at RMG Wealth
Management. 
    "Value in the euro lies in the crosses, especially against
the yen given Japan's own problems and against the Australian
dollar because we are seeing commodity prices coming off." 
    Against the yen, the euro was 0.5 percent higher at 101.03 
yen. The dollar rose 0.1 percent against the Japanese
currency to 78.10 yen, having hit a more than one-week
high of 78.21 after Japan's new finance chief warned of possible
action to cap the currency's rise. 
     
    RATE CUT DENTS AUSSIE 
    The growth-linked Australian dollar fell to a four-week
trough against the U.S. currency and slid against the euro after
the Reserve Bank of Australia cut interest rates by a quarter
point and left the door open for more easing. 
    The Aussie dollar fell to US$1.0291, its lowest
level since early September, also weighed down by concerns about
slowing growth in China. It was last down 0.4 percent at
US$1.0314. The euro climbed around 0.9 percent to A$1.2558
. 
    While the cut to 3.25 percent was not a complete surprise,
some analysts had thought Australia's central bank would wait
until November to lower interest rates. 
    Western Union's Manimbo said the key to the outlook for RBA
policy is the economic situation in China, Australia's No. 1
export market.
    "Further signs of weakness (in China) would keep pressure on
the RBA to cut rates further."