AlQa'dah 12, 1433, Sep 28, 2012, SPA -- Sterling fell against the euro on Friday after investors gave a cautious welcome to Spain's 2013 draft budget, although losses were expected to be capped by uncertainty over when the country may ask for a bailout, Reuters reported. Earlier in the session, an annual European Union farm subsidy payment to the UK, which involved around 3 billion euros of sterling-positive flows, kept euro gains in check. But market players said that, with that payment out of the way, many investors were cutting out of short euro positions. Sterling trade was also impacted by month-end rebalancing flows that involved demand for the euro. The single currency rose 0.3 percent to 79.67 pence, moving away from a three-week low of 79.23 pence hit on Thursday. Strong support for the euro was expected at around 79.20 pence, the 50-day moving average. Spain unveiled a 2013 budget based on spending cuts, which many saw as an effort to pre-empt the likely conditions of an international bailout. Many market players said a Spanish bailout request would be seen as a positive for the euro, because it would allow the European Central Bank to start buying the country's bonds and lowering its borrowing costs. Investors were also looking ahead to the results of an audit on the recapitalisation needs of Spanish banks, which could knock the euro if banks' funding needs are much bigger than anticipated. Although the euro firmed versus sterling, market speculation that Spain could be downgraded by ratings agency Moody's after the Friday close unnerved some investors and weighed on other perceived riskier currencies. The pound fell 0.6 percent against the dollar to $1.6141, retreating from last week's 13-month high of $1.6310. -- SPA
