* ECB seen sticking to its policy message next week -Reuters
* Signs of Merkel's struggle to govern puts euro on back foot
* Bitcoin, other cryptocurrencies plunge on crackdown fears
* Yen, Swiss franc gain as U.S. stocks retreat
(Updates market action, adds quote)
By Richard Leong
NEW YORK, Jan 16 (Reuters) - The euro held close to a three-year high against the dollar on Tuesday, as the common currency recovered from earlier losses tied to doubts that the European Central Bank would back away from its pledge to keep buying bonds at next week's meeting.
Digital currencies tumbled, with bitcoin dropping as much as 18 percent to a four-week low near $11,000 after reports suggested it was still possible that South Korea could ban trading them, which intensified fears of a wider regulatory crackdown. Sources close to the ECB told Reuters that the central bank was unlikely to tweak its policy message so soon, as rate setters need more time to assess the outlook for the economy and the euro. "For ECB policymakers, they are thinking 'We have to be careful to not feed into this run,'" said Dragah Maher, U.S. head of FX strategy at HSBC Securities in New York.
The dollar gained against the euro on the Reuters report. The greenback's recovery was also stoked by anxiety over whether German Chancellor Angela Merkel would manage to form a "grand coalition" to govern.
Members of the center-left Social Democrats (SPD) in one ofGermany's regions voted against talks with Merkel's conservative Christian Democrats (CDU) on Monday, and fresh headlines on that development triggered a fall in the euro in early European trading on Tuesday. The euro was up 0.06 percent at $1.2268.
Its weakness against the dollar dissipated as Wall Street stocks turned lower on profit-taking that emerged after the Dow hit the 26,000 mark for the first time. The reversal on U.S. stocks kindled safehaven demand for the yen and Swiss franc.
The dollar was down 0.18 percent at 110.32 yen, while the greenback was down 0.45 percent at 0.9586 franc per dollar.
The euro's decline did not dent bullish sentiment for more gains in the coming months.
Speculators boosted net long positions in the euro to a record high in the week to Jan. 12, according to futures data published on Friday. The dollar's index against a basket of six major currencies was down 0.05 percent at 90.398. It was up from Monday's three-year low of 90.279.
"A lot of the dollar's early strength was just short-coming. There's a lot of heavy bias for dollar weakness," said Lennon Sweeting, chief market strategist at XE in Toronto.
Fears of stricter government oversight sparked a broad sell-off in digital currencies.
Cryptocurrencies ethereum and ripple were down 19 percent and 29 percent, respectively. Most cryptocurrencies posted double digit losses, according to Coinmarketcap. ========================================================
Currency bid prices at 3:12PM (2012 GMT)DescriptionRIC Last U.S. ClosePct Change YTD Pct High BidLow Bid
Previous Change
Session Euro/DollarEUR=$1.2267$1.2261 +0.05% +2.26%+1.2282 +1.2196Dollar/Yen JPY=110.2900 110.5200-0.21% -2.11%+110.9700 +110.2600Euro/Yen EURJPY= 135.31 135.54-0.17% +0.10%+136.0900 +135.0000Dollar/Swiss CHF=0.9594 0.9629-0.36% -1.53%+0.9665 +0.9582Sterling/DollarGBP=1.3792 1.3789+0.02% +2.07%+1.3805 +1.3743Dollar/CanadianCAD=1.2424 1.2428-0.03% -1.22%+1.2451 +1.2396Australian/DollAUD=0.7961 0.7963-0.03% +2.05%+0.7974 +0.7938ar Euro/Swiss EURCHF= 1.1770 1.1810-0.34% +0.69%+1.1828 +1.1763Euro/SterlingEURGBP= 0.8893 0.8894-0.01% +0.11%+0.8900 +0.8862NZ NZD=0.7274 0.7299-0.34% +2.65%+0.7307 +0.7260Dollar/DollarDollar/NorwayNOK=7.8682 7.8788-0.13% -4.13%+7.9008 +7.8652Euro/NorwayEURNOK= 9.6546 9.6630-0.09% -1.97%+9.6775 +9.6097Dollar/SwedenSEK=8.0357 8.0117+0.34% -2.02%+8.0542 +8.0040Euro/SwedenEURSEK= 9.8594 9.8262+0.34% +0.21%+9.8720 +9.8179
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Euro Takes Flight World FX rates in 2017 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>(Additional reporting by Jemima Kelly in London; Masayuki Kitano in Singapore; Editing by Keith Weir and Steve Orlofsky)
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