* Euro rebounds from 3-1/2-month low vs dollar
* Euro ends 8 straight days of declines vs dollar
* Slight respite from Spain, Greek concerns gives support
* U.S. jobless claims data allays labor market concerns
NEW YORK, May 10 (Reuters) - The euro rose against the
dollar on Thursday, snapping eight straight sessions of declines
and bouncing from its recent 3-1/2-month low as stress in
Spanish debt markets eased and Greece secured funds to repay its
bondholders.
The tempering of the dual threats of a Greek insolvency and
the country's potential exit from the euro also had the single
currency rebounding from a mid-February low against the Japanese
yen.
Greece averted an imminent funding crisis after the board of
the European Financial Stability Facility agreed to release a
scheduled payment. The allocation allows the country to meet
near-term bond redemptions, helping the euro stabilize after an
eight-day sell off.
"The EFSF agreement could be viewed as euro-positive, and
data in the U.S. and overseas was not negative, but today's euro
gains are primarily due to consolidation more than anything
else," said Nick Bennenbroek, head of currency strategy at Wells
Fargo in New York.
"The euro's bounce has been reasonably limited, so this is
not a turnaround, and the whole political process in Greece is
still playing out," he said. "A new range of $1.26-$1.30 in the
euro/dollar is likely on its way to being formed."
Greece's future in the euro zone was questioned for several
months but then largely ignored as it seemed to be taking
measures to keep access to funding while it worked its way
through fiscal debt woes.
However, with another round of elections looming and doubts
about whether the country will adhere to austerity measures
needed to secure further emergency funding, the question of
Greece's place in the euro zone and even the European Union is
coming back into focus.
The euro last traded at $1.2958, up 0.2 percent after
hitting its lowest since late January on Wednesday of $1.2910.
Traders said the next possible support for the euro was
around $1.2819, the 76.4 percent Fibonacci retracement of its
2012 rally, with the year's low around $1.2623, according to
Reuters data, then coming into play.
A drop in 10-year Spanish government bond yields also
favored the euro. The country's government effectively took over
Bankia, one of the country's biggest banks, in a bid to restore
confidence in a sector laden with bad debts.
Options investors, however, are betting on a weak euro, with
three-month risk reversals biased toward puts,
trading at -2.65 vols Thursday, but up from -2.3 vols a week
earlier and -2.2 vols at the start of the month.
Greek Leftist leader Alexis Tsipras gave up his attempt to
form a new government on Wednesday, putting Greek Socialist
leader Evangelos Venizelos in a position to make a last-ditch
attempt to form a government on Thursday.
With Athens at risk of running out of cash in June, a re-run
of elections could be a make-or-break event for Greece.
European Union paymaster Germany warned Greece on Thursday
that European partners could only go on aiding debt-ridden
Athens if it sticks to an international bailout program
rejected by voters in a general election.
"We're entering a new chapter of concern for the euro zone
and it's not one that can be resolved in the near future," said
Tom Levinson, currency strategist at ING in London, who expected
sellers to stamp out any short-covering rallies in the common
currency.
Against the yen, the euro was up 0.6 percent at 103.58 yen
from the previous day's low of 102.73 yen, its lowest
level since Feb. 16.
With a drop in U.S. claims for unemployment benefits, the
dollar gained against the yen, while another report showed the
U.S. trade deficit widened in March. Together, the reports
indicated the economy remains on a moderate growth path.
The U.S. dollar was last up 0.4 percent at 79.91 yen.
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