FOREX-Euro hits 10-year low vs yen, dented by stops

* Euro hits lowest since Jan vs dollar

* Next target seen around $1.2860, the 2011 trough

* Italy's 8.5 bln euro bond sale in focus

* Stops and Japan exporter sales dent euro/yen -traders

By Masayuki Kitano

SINGAPORE, Dec 29 (Reuters) - The euro slid to a 10-year low against the yen and the lowest in nearly a year versus the dollar on Thursday, having suffered a sudden drop the previous day as moves were amplified in poor year-end liquidity.

The euro was pressured by stop-loss selling as well as selling by Japanese exporters on Thursday, traders said.

Such flows added to pressure against the euro, which fell the previous day after investors were spooked by European Central Bank data that showed euro zone banks deposited a record 452 billion euros ($585.18 billion) with the central bank.

Signs that banks were hoarding cash came just days after the ECB provided them almost half a trillion euros worth of three-year loans at cut-rate prices to encourage lending. The new data suggested that European banks are still distrustful of lending to each other, preferring to deposit money with the ECB instead.

In addition, a renewed rise in Italian 10-year government bond yields over the past few weeks bodes ill for the single currency, an FX sales trader for a major Japanese bank in Tokyo said.

"Unless steps such as expanding the ECB's role are taken...it will be hard to stem this move lower (in the euro)," the trader said.

A focal point among market players has been whether the ECB will play a greater role in stabilising debt markets by expanding its purchases of euro zone debt.

Italian 10-year government bond yields are now above 7 percent, roughly the threshold beyond which other euro zone governments have been forced to seek bailouts.

The euro fell to as low as 100.35 yen on trading platform EBS earlier on Thursday, its lowest level since June 2001.

After trimming some of its losses, the euro was changing hands at 100.57 yen, down 0.3 percent from late U.S. trade on Wednesday.

There was market talk of an option barrier at 100.00 yen, suggesting that the euro could draw some support from buying by options players just above that level.

But the euro's drop might gain additional momentum if that level is breached, with one trader saying there were large stop-loss euro offers at 100.00 yen.

The single currency fell 0.1 percent versus the dollar to $1.2926. It touched a low of $1.2887 at one point on Thursday, its lowest level since Jan. 10, when the euro fell to as low as $1.2860.

Markets are now waiting to see the outcome of a sale of up to 8.5 billion euros of Italian bonds on Thursday.

Some traders said the euro's drop the previous day was partly due to year-end fund repatriation by U.S. companies.

Another factor that accelerated the euro's slide was its drop below recent trendline support.

"EUR/USD broke below its upward trending channel, driven by a large GBP/USD flow in very thin markets. This EUR/USD breakout is triggering automated switches to risk off positions, with little else behind it," said Sebastien Galy, strategist at Societe Generale.

The euro's latest drop helped lift the dollar to 80.729 versus a basket of currencies at one point, right near an 11-month high of 80.730 hit in mid-December.

Against the yen, the greenback eased 0.2 percent to 77.80 yen.