WORLD: Euro Pares Losses, But Remain Under Pressure

--Euro stabilizes after Bernanke-inspired rumble
--Norwegian krone, Polish zloty sparkle



LONDON (Dow Jones)--The euro stabilized Thursday as the damage inflicted on the currency's value Wednesday by a relatively hawkish U.S. Federal Reserve Chairman Ben Bernanke ran its course.

The single currency lost 1% of its value against the greenback after Bernanke's semi-annual monetary policy report late Wednesday, as investors scrambled to adjust positions that had been primed for a bout of stimulus-induced dollar weakness. The currency traded as low as $1.3315 late Wednesday, before recovering some of the losses in European hours.

"We are somewhat surprised by the market reaction to Bernanke given that his overall tone regarding the outlook for the U.S. economy remained downbeat, downplaying recent signs of improvement in the labour market," said the Bank of Tokyo Mitsubishi-UFJ in a research note.

The euro's slight rebound was also helped by positive manufacturing numbers from China and Taiwan, followed by encouraging euro-zone purchasing managers' index print. The drop in manufacturing activity in the monetary union slowed compared with January and printed at 49.0 compared with 48.8 in January, in line with previous flash estimates.

But the currency was unable to capitalize on the brighter manufacturing outlook as unemployment remained at the highest level since the euro's inception, and inflation rose to 2.7% from 2.6% previously.

"The latest euro-zone data revealed an unpalatable combination of stubborn inflation and rising unemployment at the start of the year, suggesting that the recent improvement in sentiment towards the economy may not last for long," said Capital Economics in a note to clients. Manufacturing growth in the U.K. slowed, but it remained in expansionary territory and failed to dent the pound.

Spain and France both successfully auctioned government bonds and benefited from improving yields as the European Central Bank's latest liquidity operation improved appetite for peripheral bonds. In a further sign of growing confidence, Italy's borrowing costs also edged lower, with yields on the country's 10-year government bonds slipping under 5% for the first time since August.

As Greek news appears to have taken the back seat for now, market participants will be closely watching whether the International Swaps and Derivatives Association rules that a credit event has occurred on Greek credit derivative swaps.

Meanwhile, the Norwegian krone printed another nine-year high against the euro as the currency continued to benefit from rising oil prices and healthy macroeconomic fundamentals.

"Robust growth in the economy reduce the possibility of rate cuts, which strengthens the krone," said Swedbank First Securities analyst Bjorn-Roger Wilhelmsen.

The Polish zloty was the standout performer in emerging market currencies, as the Polish economy beat expectations with a 4.3% growth on the year.

At 1144 GMT the euro traded at $1.3322 compared with $1.3324 late Wednesday according to EBS via CQG, while it traded at Y107.99 from Y108.13. The pound traded at $1.5943 and at EUR0.8357. The dollar was at Y81.05 compared to Y81.14 and at CHF0.9048 from CHF0.9044.

The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 78.755 compared with 78.806.