Euro falls as risk routed; China data looms

One hundred Euro banknotes lay on top of various Swiss Franc notes in this picture illustration at a bank in Warsaw, July 18, 2011.

SYDNEY (Reuters) - The euro nursed heavy losses in Asia on Thursday, having plumbed its lowest level in 11 months, as signs the European debt crisis could run and run sent investors fleeing risk assets for US Treasuries.

The Asian focus will be on the HSBC flash China PMI where a soft number would fan fears of a hard landing and hit Asian currencies as well as the Australian dollar.

The euro fell as low as $1.2944, its weakest level since January 11, after taking out options-related barriers at $1.3005, $1.3000, and $1.2990.

It last traded at $1.2980 with traders citing a very large option barrier that expires on Friday at $1.2900. Major support is found at the year's low at $1.2860.

The euro also slipped 0.3 percent against the yen, to 101.29, after falling to an 11 week trough of 101.07.

A Fitch downgrade of five major European financial groups, including France's Credit Agricole <CAGR .PA> to A-plus from AA-negative, added to the already euro-negative sentiment.

This comes on top of the prospect of further cuts by Standard & Poor's which warned earlier this month it could downgrade the ratings of 15 of the 17 euro zone members.

The dollar .DXY was the big winner, peaking at an 11-month high of 80.031 and targeting the 2011 summit of 81.31. The U.S. dollar nudged up on the yen to 78.00.

"I certainly see U.S. strength continuing, the U.S. economy is accelerating, we'll probably get a validation of that with U.S. industrial output (later on Thursday)," said Joseph Capurso, a strategist at Commonwealth Bank of Australia

"I can see the U.S. dollar keep trending higher while the euro flounders."

The rush to safety sent U.S. Treasuries surging, with 30-year yields diving to 2.9 percent, the lowest since November 25, after a strong auction <US/>. This came in contrast with Italy's tender whose yields reached a euro-era record at 6.47 percent, after last week's EU summit failed to convince markets the bloc's debt crisis can be resolved.

Even gold, usually seen as a safe-haven, was hard hit. Fears for global growth and fund liquidation send it sliding, forcing investors to get out of other leveraged positions.

Commodity currencies such as the Aussie dropped 1 percent to $0.9907.

More surprisingly, the Norwegian crown was a big casualty, hitting 11-month lows after the country's central bank surprised by cutting rates a large 50 basis points. Such a drastic move was further evidence of how worried policy makers are becoming globally.

The Swiss franc came under pressure against the U.S. dollar, sliding to a 10-month trough, ahead of a central bank policy meeting later Thursday.

The SNB is expected to stay on hold this week, but analysts suspect it is only a matter of time before it shift the cap on its currency.