Euro helped by Moody's reaffirming Spanish rating
* Investors anticipating Spanish aid request
* Low expectations for EU summit later in week
* Dollar hits 1 month high vs yen amid BoJ easing speculation
NEW YORK, Oct 17 (Reuters) - The euro rose to a one-month high against the U.S. dollar on Wednesday as growing speculation Madrid will ask for a bailout next month added to positive sentiment from the previous day when Moody's rating agency affirmed the investment grade rating for Spain's debt.
Moody's rating, which is contingent on Spain implementing fiscal reforms and the European Central Bank stepping in to buy bonds of peripheral euro zone countries, soothed concerns about a downgrade to junk status. That pushed Spanish yields lower before a debt auction on Thursday and helped the euro.
The euro has been supported in recent weeks by bets that Spain will eventually request a bailout, a move that would open the way for the European Central Bank to buy Spanish debt and help lower borrowing costs. Talk that a line of credit could be extended to Spain has also boosted the euro.
The dollar pared losses against the yen after a report indicated groundbreaking on new U.S. homes surged in September to its fastest pace in more than four years, a sign the housing sector's budding recovery is gaining traction.
"By passing on the opportunity to downgrade Spain's rating to junk, Moody's removed one major uncertainty from the financial markets and investors around the world have responded positively," said Kathy Lien, managing director at BK Asset Management in New York.
The euro was last up 0.6 percent on the day at $1.3124, with the peak at $1.3139 its highest since mid-September. Strong resistance was seen at $1.3169, the four-month high set on Sept. 17, with stop-loss orders cited above $1.3180 and reported option barriers at $1.3200.
Traders cited strong bids from sovereign investors at $1.3080 but most market players were cautious about driving it above $1.3200 without a definite aid request from Madrid.
Some US$5.625 billion in euros changed hands using Reuters Dealing on Wednesday.
AID REQUEST
"It's supportive that Spain avoided a downgrade but the bigger driver is more expectations that Spain will soon require some form of financial support from Europe," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi in London.
The timing of such an aid request, however, remains unclear.
Hardman said the euro could squeeze as high as $1.35 after a Spanish bailout request but may falter there if concerns resurface that euro zone policymakers are being complacent in tackling the long-running sovereign debt crisis.
A possible line of credit to Spain and some easing of German opposition for aid to smaller euro zone countries were likely to support the euro in the near term.
But expectations of progress in addressing Greece's problems at a European Union summit on Thursday and Friday were low. A German official, speaking on condition of anonymity, said he did not expect any substantial discussion of Greece at the summit, and did not foresee an interim report from international lenders on the Greek economy.
Greek Prime Minister Antonis Samaras said on the sidelines of a meeting of European center-right parties in Bucharest on Wednesday that Greece is close to reaching a deal with its international lenders to unlock aid for the near-bankrupt country.
The yen has been held back recently by speculation about the potential for further monetary easing by the Bank of Japan, which holds its next policy meeting on Oct. 30.
Market talk about the potential for dollar-buying flows related to Japanese mobile operator Softbank Corp's $20 billion deal to buy U.S. wireless carrier Sprint Nextel Corp has also weighed on the yen in recent sessions.
The dollar hit a one-month high of 79.04 yen and last traded at 78.98, up 0.2 percent, according to Reuters data.
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