LONDON, Dec 27 (Reuters) - The Australian dollar steadied on Monday, paring losses made after China's central bank raised rates at the weekend in a move seen largely priced in, while other major currency pairs lacked momentum in quiet trade.
The euro edged higher against the dollar in low volume trade with London markets shut Monday and Tuesday, while the yen hit a three-week high versus the greenback.
While the market had been expecting Beijing to tighten further, the timing was a surprise as there had been doubts whether it would raise rates before the end of the year. [ID:nTOE6BO014]
Saturday's move by the Chinese central bank to raise interest rates was the second in just over two months, underscoring its desire to dampen domestic demand and get price pressures under control.
Australia has benefited from strong Chinese demand for iron ore and other commodities.
"There was a knee-jerk sell-off in the Aussie but investors knew this China move was coming eventually. Providing the Chinese data holds up in 2011, the Aussie should stay supported," said Geoffrey Yu, currency strategist at UBS.
The news knocked the Australian dollar as low as $0.9987 but it recouped its losses to trade flat in European trade at $1.0035, not far from a six-week high of $1.0067 hit last Thursday.
Some traders saw any dip in the Aussie as a good bargain-hunting opportunity, as has been the case since early 2009.
"I guess the market is growing immune to China's credit tightening. Today the Aussie fell just because there aren't many players around," said a trader at a Japanese brokerage house.
