The euro struggled to stay above the $1.300 level against the dollar in Asia on Tuesday after slithering from a three-week peak on news that euro zone finance ministers rejected an offer by private creditors to restructure Greek debt, keeping alive default fears.     

The euro slipped as low as $1.2987 before steadying at $1.3005. On Monday, it had jumped more than 1 percent to a high of $1.3053 on the EBS trading platform as hopes of an eventual Greek deal drove a wave of short-covering.     

"The euro's moves are familiar, with positive news leading some to cover their short positions, followed by a correction as investors sell into the rallies," said Koji Fukaya, chief currency analyst at Credit Suisse in Tokyo.     

The euro hit a session low after a report rekindled fears that Portugal, seen as the second most risky country in the euro zone, could be the next potential default candidate after Greece.      

Many Asian centres are closed for the Lunar New Year holidays, making volumes thinner than usual and amplifying market moves, traders said.      

Further dousing optimism, Germany denied a report that it was ready to boost the combined firepower of the euro zone's rescue funds to 750 billion euros ($979 billion).

But the euro's biggest move of about 30 ticks came after euro zone finance ministers sent the Greek debt restructuring offer back to the drawing board.      

Despite the pullback, the euro was still well off its 17-month EBS nadir of $1.2624 hit on January 13, leading some to wonder if it might have bottomed for now.     

Resistance is now seen around $1.3077/1.3100, the January 3 EBS high and a 38.2 percent retracement of the November-January slump. But a break above the October EBS low of $1.3145 is still needed to turn the technical picture positive, traders said.      

Against the yen, the euro hit a near four-week high of 100.49 on Monday before retreating to a low of 100.03 yen and steadying at 100.19 in Asia, still well off an 11-year EBS low of 97.04 marked on Jan 16.     

The euro's retreat helped the dollar index rise off a three-week low of 79.602 hit on Monday to stand at 79.849.

Support lies at 79.52, around the January 3 low and the 55-day moving average around 79.57. A rally over 80.50 is needed to signal that a bottom is in place.     

Against the yen, the greenback fetched 77.03, still tightly wedged in its prevailing trading range between 76.6 and 77.20. Reaction was muted to the Bank of Japan's widely expected decision to hold policy steady at its regular meeting, as well as cut its economic forecasts.      

"There was no movement" on dollar/yen, said Masashi Murata, a currency strategist in Tokyo at Brown Brothers Harriman. "That is a pair that is caught, for the time being, no matter what the news is and what risk does."      

Waning risk appetite also pressured commodity currencies, with the Australian dollar slipping 0.3 percent to $1.0494, off a 12-week peak of $1.0574 set overnight.     

Asian investors also awaited the outcome of the Federal Reserve policy meeting that starts later on Tuesday.     

While no policy change is expected, the Fed will likely show that its policymakers do not expect to start hiking interest rates again until the first half of 2014, more than five years after chopping them to near zero, a Reuters poll of leading Wall Street economists showed.      

Any signs that rates will stay lower for longer than expected could pressure the greenback. – Reuters