Shutterstock photo* Italian vote points to hung parliament, rise of anti-europarties
* Euro draws support from German coalition deal
* Dollar hampered by concerns over trade war
* China National People's Congress is also eyed
By Hideyuki Sano and Tomo Uetake
TOKYO, March 5 (Reuters) - The euro clawed back earlierlosses on Monday but remained prone to volatility as initialresults in Italian elections pointed to stronger-than-expectedshowing for euro-sceptic parties, with no major party blocswinning an outright majority.
The common currency found some support as Germany's SocialDemocrats (SPD) decisively backed another coalition withChancellor Angela Merkel's conservatives.
The euro EUR= traded at $1.2320, slightly above its lateU.S. levels, off its seven-week low of $1.21545, which ittouched on Thursday.
Exit polls and early counts showed Italy's 5-Star Movementis likely to be the largest single party by a wide margin, aprojection a prominent deputy from the party called a "triumph". urn:newsml:reuters.com:*:nR1N1NM021
The centre-right bloc, made up of former prime ministerSilvio Berlusconi's Forza Italia, and the far-right League andBrothers of Italy, is set to win most seats but is seen fallingsome way short of an absolute majority. urn:newsml:reuters.com:*:nL5N1QL06Z
With full results not due for many hours, market reactionhas been limited but investors are likely to take fright at anysuggestion the 5-Star could form a coalition with the right-wingLeague.
Initial tallies suggested the two forces would have enoughseats to govern together and they have in the past shared stronganti-euro views. While the League still says it wants to leavethe single currency at the earliest feasible moment, the 5-Starsays the time for quitting the euro has passed.
"On the whole, the results appeared to be in line with priorpolls. The focus now is whether the League will become thebiggest party in the centre-right bloc. In that case, there's achance the bloc could fall apart," said Hideki Kishida, senioranalyst at Nomura Securities.
The euro started the week on a solid footing as two-thirdsof SPD members supported the coalition, clearing the way for anew government in Europe's largest economy after months ofpolitical uncertainty. urn:newsml:reuters.com:*:nL5N1QM03A
The U.S. currency was also on slippery footing afterPresident Donald Trump last week proposed tariffs on importedsteel and aluminium, raising fears of retaliation from its tradepartners that could trigger a trade war.
"Now that European election outcomes are turning out to beas expected, a potential trade war between the United States andthe rest of the world is once again the focus," said DaisukeKarakama, chief market economist at Mizuho bank.
"Some call it just a bluff but I think things today are moreserious than a year ago."
The dollar was softer against the yen at 105.52 yenJPY= ,near Friday's 16-month low of 105.24.
Bank of Japan Governor Haruhiko Kuroda said the BOJ wouldconsider an exit from its ultra-easy monetary policy if it metits inflation target in the next fiscal year from April 2019. urn:newsml:reuters.com:*:nL4N1QK2HZ
Traders will be looking at confirmation hearings inparliament of two nominees for BOJ Deputy Governors, the bank'sexecutive director Masayoshi Amamiya and Waseda Universityprofessor Masazumi Wakatabe.
Also on radar are China'sNational People's Congress (NPC),which kicked off its annual meetings on Monday, and U.S. ISMnon-manufacturing index for February, due later in theday. urn:newsml:reuters.com:*:nL4N1QN18O
(Reporting by Hideyuki Sano and Tomo Uetake; Editing by KimCoghill and Sam Holmes) ((hideyuki.sano@thomsonreuters.com; +81 3 6441 1827; ReutersMessaging: hideyuki.sano.thomsonreuters.com@reuters.net))
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