* 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
(Updates market action, changes dateline, previous LONDON)
By Richard Leong
NEW YORK, Jan 16 (Reuters) - The euro retreated from a three-year high on Tuesday as investors sold the currency on 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 losing 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 policy-makers, they are thinking 'We have to be careful to not feed into this run'," Dragah Maher, U.S. head of FX strategy at HSBC Securities in New York, said.
After its best three-day performance in nearly two years, the euro fell as low as $1.2208 on the Reuters report. It was already pressured by anxiety over whether German Chancellor Angela Merkel would manage to form a "grand coalition" to govern.
Members of the centre-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 last down 0.38 percent at $1.2215.
The euro had climbed 2.7 percent between Thursday and Monday, making gains not seen since February 2016, and hit as high as $1.22965, its strongest since December 2014.
U.S. financial markets were closed on Monday for Martin Luther King Jr. holiday.
"This is just some pull-back after strong gains in recent days, and some headline risk came through this morning raising concern over whether the new government would be formed in Germany," said MUFG currency analyst Lee Hardman, in London.
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 common currency was down 0.14 percent at 135.35 yen.
The dollar's index against a basket of six major currencies was up 0.29 percent at 90.703. It was up from Monday's three-year low of 90.279.
Fears of stricter government oversight sparked a broad sell-off in digital currencies.
Along with bitcoin, ethereum and ripple were down 16 percent and 24 percent, respectively. Most cryptocurrencies posted double digit losses, according to Coinmarketcap.========================================================
Currency bid prices at 10:29AM (1529 GMT)DescriptionRIC Last U.S. ClosePct Change YTD Pct High BidLow Bid
Previous Change
Session Euro/DollarEUR=$1.2216$1.2261 -0.37% +1.83%+1.2282 +1.2196Dollar/Yen JPY=110.7900 110.5200+0.24% -1.67%+110.9700 +110.4800Euro/Yen EURJPY= 135.35 135.54-0.14% +0.13%+136.0900 +135.0000Dollar/Swiss CHF=0.9646 0.9629+0.18% -1.00%+0.9665 +0.9626Sterling/DollarGBP=1.3765 1.3789-0.17% +1.87%+1.3805 +1.3743Dollar/CanadianCAD=1.2413 1.2428-0.12% -1.30%+1.2451 +1.2413Australian/DollAUD=0.7945 0.7963-0.23% +1.85%+0.7974 +0.7938ar Euro/Swiss EURCHF= 1.1785 1.1810-0.21% +0.82%+1.1828 +1.1779Euro/SterlingEURGBP= 0.8872 0.8894-0.25% -0.12%+0.8900 +0.8862NZ NZD=0.7266 0.7299-0.45% +2.54%+0.7307 +0.7260Dollar/DollarDollar/NorwayNOK=7.8787 7.8788+0.00% -4.00%+7.9008 +7.8697Euro/NorwayEURNOK= 9.6255 9.6630-0.39% -2.27%+9.6775 +9.6097Dollar/SwedenSEK=8.0477 8.0117+0.07% -1.88%+8.0542 +8.0040Euro/SwedenEURSEK= 9.8329 9.8262+0.07% -0.06%+9.8365 +9.8179
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Euro Takes Flight World FX rates in 2017 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>(Additional reporting by Jemima Kelly in London; Masayuki Kitano in Singapore; Editing by Edmund Blair and Keith Weir)
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