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FOREX-Norwegian crown slides to 5-1/2 yr low as rate decision looms

* Norway’s central bank may set scene for lower rates

* Political uncertainty in Greece keeps euro in check

* ECB refinancing operation eyed, low take-up may hurt euro

* Adjustment in long dollar positions continues (Recasts, leads with Norwegian crown’s drop, details)

By Anirban Nag

LONDON, Dec 10 (Reuters) – The Norwegian crown slumped to its lowest point in over five years against the euro on Wednesday, battered by falling oil prices and investors betting that Norway’s central bank will point towards further monetary easing on Thursday.

While investors do not expect Norges Bank to cut rates at Thursday’s meeting, chances are growing that it may set the scene for looser policy in coming months as the oil-exporting country grapples with lower crude prices.

Earlier in the day, core inflation in Norway eased, but in line with expectations.

“Although the small decline in the inflation rate in November seems harmless, bearing in mind that the low oil prices have given rise to uncertainty over the Norges Bank’s growth outlook, it could signal a rate cut early next year. This could prove negative for the crown,” said Marshall Gittler, head of global FX strategy at IronFX Global.

The euro rose 1.2 percent to 8.9350 crowns, its highest since mid-2009. Against the dollar too, the Norwegian crown was trading at lows last seen in early 2009.

The euro was steady against the dollar at $ 1.2370, failing to retain earlier gains as investors remained nervous over an uncertain political situation in Greece. It stayed well below a high of $ 1.2448 struck on Tuesday when investors trimmed long dollar positions, booking profits ahead of the year-end.

The euro was down 0.4 percent against the yen at 147.55 yen .

The Greek government has brought forward to next week a presidential vote that will force nearly two dozen independent lawmakers to decide whether to side with Prime Minister Antonis Samaras’ pro-bailout cabinet or with leftist radicals who have vowed to tear up the bailout.

That decision prompted the steepest daily fall in Greek stocks on Tuesday in more than a quarter century, as well as a jump in bond yields.

“The Greek situation is coming back to haunt the euro,” said Niels Christensen, FX strategist at Nordea.

“Also, for the euro, if there are not too many banks lining up for cheap long-term loans that are on offer from the ECB tomorrow, pressure on the central bank will grow to ease further. And that is not good for the euro.”

On Thursday, the ECB conducts its second targeted long-term refinancing operation. Expectations for the amount to be lent out have decreased to as low as 130 billion euros in the latest Reuters poll, which would miss targets the ECB may have had in mind by a substantial amount.

The ECB had intended to expand its balance sheet sharply by offering such cheap loans to banks and flooding the system with euros, driving down the value of the common currency. But demand for the loans is likely to remain low, raising pressure on the ECB to make outright government bond purchases.

The dollar fell 0.4 percent against the yen to trade at 119.10. At one point on Tuesday, it dropped more than 2 percent to 117.90 in a vicious turnaround from a seven-year peak of 121.86 set on Monday.

(Additional reporting by Shinichi Saoshiro; Editing by Mark Heinrich)

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