FOREX-Euro climbs after ECB's Draghi says no deflation in euro zone

* Euro surges on deflation denial, postponing of any policy action

* Aussie bolstered by upbeat retail sales data

* Dollar weakens vs yen

* U.S. weekly jobless claims fall more than expected

(Recasts, changes byline and dateline)

By Daniel Bases

LONDON, Feb 6 (Reuters) - The euro rallied on Thursday after European Central Bank President Mario Draghi said there is no euro zone deflation problem, following the bank's decision to leave interest rates unchanged and wait for more data before taking action.

Leaving the main monetary policy rate at 0.25 percent did not immediately spark the short-covering rally that saw the euro zone currency climb against the U.S. dollar, yen, and sterling.

"Really the move started when (Draghi) mentioned there is no deflation problem. That is when the euro gapped higher because when you are denying deflation you are not easing anytime soon," said Sebastian Galy, senior currency strategist at Societe Generale in New York.

The market was largely betting the other way on the ECB, expecting either a rate cut or a strong signal from Draghi that this was a prospect. It got neither and that set off the euro's short-covering rally to hit a one-week high of $1.36190, up 0.56 percent, against the U.S. dollar EUR=EBS , according to EBS data. The euro hit a two-month low on Monday

A bigger-than-expected fall of 20,000 new claims for U.S. unemployment benefits to a seasonally adjusted 331,000 did little to help underpin the U.S. dollar. The U.S. trade deficit widened to $38.7 billion in December as exports fell and imports rose. News Search ID:nL2N0LB0PI

While the U.S. data was mixed, the ECB's decision to wait for more economic data before acting on what kind of stimulus it might take raised questions about the euro zone's recovery despite its already ultra-low borrowing costs meant to push up prices.

Euro zone inflation fell to just 0.7 percent last month and retail sales numbers on Wednesday were disappointing but recent business sentiment surveys have been more positive, offering the ECB some room to manoeuvre on policy.

"Draghi has taken time to explain why the ECB didn't take any action. One thing he highlighted was about new economic projections in March. He didn't commit to easing. I would be surprised if he did. But he is open to ease more if the next inflation print is similar to what we saw in January," Vassili Serebriakov, currency strategist at BNP Paribas in New York.

"On the crosses, it's all about relative rate differentials for the rest of the year. We are comfortable with short trades with the euro against other European currencies. European rates will remain low, while rates in the U.K., Norway and Sweden should rise," he added.

The euro strengthened to a five-week high against the British pound, trading up to 0.83505 pence EURGBP=D4 , a gain of more than 0.50 percent on the day.

Against the Japanese currency, the euro climbed 0.80 percent at 138.35 yen EURJPY= . The greenback rose 0.31 percent to 101.72 yen JPY= .

AUSSIE GAINS

Australia's dollar added to gains which have seen it jump more than 2 percent this week after the country's central bank dropped its bias towards lower interest rates and toned down a long-term call for the currency to weaken AUD=D4 .

That put a halt to a months-long slide in the Aussie due to worries over Australia's economic prospects in the face of lower commodities prices and a slowdown in China, and some traders reported a handful of banks going long on the Aussie against the euro EURAUD= ahead of the ECB decision.

Investors pushed the Aussie dollar up a further 0.69 percent to US$0.8964.

The greenback rose 0.15 percent to C$1.1096 , after Canada reported a much bigger-than-expected trade deficit in December of C$1.66 billion ($1.49 billion), its biggest gap since 2012.

"The Canadian data was atrocious," said Societe Generale's Galy, who added: "People are starting to get hesitant on Canada's growth outlook."

(Additional reporting by Patrick Graham in London, Ian Chua and Cecile Lefort in Sydney, Masayuki Kitano in Singapore and Richard Leong in New York; Editing by Jon Boyle and James Dalgleish)

((daniel.bases@thomsonreuters.com)(+1 646 223 6131)(Reuters Messaging: daniel.bases.reuters.com@reuters.net))

 
((Currency bid prices at 10:01AM (1501 GMT) 
Description    RIC    Last    U.S. Close 
 Previous  
 Session    Pct Change    YTD Pct 
 Change    High Bid    Low Bid 
Euro/Dollar    EUR=    $1.3608    $1.3532    +0.56%    -1.00%    +1.3619    +1.3486 
Dollar/Yen    JPY=    101.7500    101.4300    +0.32%    -3.23%    +101.8300    +101.2500 
Euro/Yen    EURJPY=    138.45    137.25    +0.87%    -4.60%    +138.5000    +136.7700 
Dollar/Swiss    CHF=    0.8986    0.9030    -0.49%a     +0.65%    +0.9063    +0.8969 
Sterling/Dollar    GBP=    1.6321    1.6308    +0.08%    -1.42%    +1.6329    +1.6273 
Dollar/Canadian    CAD=    1.1079    1.1082    -0.03%    +4.32%    +1.1122    +1.1050 
Australian/Dollar    AUD=    0.8966    0.8904    +0.70%    +0.59%    +0.8980    +0.8910 
Euro/Swiss    EURCHF=    1.2228    1.2230    -0.02%    -0.35%    +1.2237    +1.2213 
Euro/Sterling    EURGBP=     0.8334    0.8294    +0.48%    +0.45%    +0.8349    +0.8276 
NZ Dollar/Dolar    NZD=    0.8243    0.8211    +0.39%    +0.45%    +0.8248    +0.8210 
Dollar/Norway    NOK=    6.1925    6.2294    -0.59%    +2.08%    +6.2453    +6.1935 
Euro/Norway    EURNOK=    8.4274    8.4310    -0.04%    +1.06%    +8.4561    +8.3992 
Dollar/Sweden    SEK=    6.4845    6.5234    -0.05%    +0.97%    +6.5396    +6.4763 
Euro/Sweden    EURSEK=    8.8247    8.8289    -0.05%    -0.47%    +8.8457    +8.7828 
     
     
All spots FX=  
Tokyo spots AFX=  
Europe spots EFX=  
Volatilities FXVOL=  
Tokyo Forex market info from BOJ TKYFX World central bank news CEN 
Economic Forecasts... ECON   Official rates...INT/RATE 
Forex Diary.......MI/DIARY   Top events........M/DIARY 
Diaries...........DIARY Diaries Index........IND/DIARY 
Press Digests.....PRESS Polls on G7 economies..SURVEY/ 
European markets......MARKETS/))

Keywords: MARKETS FOREX/