FOREX-Yen off lows as exporters buy in month-end trades
* Euro rally fizzles; S&P cuts Greece ratings to SD
* Italy to sell bonds ahead of ECB liquidity injection
* Yen crosses suffer as Japan exporters repatriate funds
By Antoni Slodkowski
TOKYO, Feb 28 (Reuters) - The yen on Tuesday pulled further away from a 9-month low plumbed the day before, bolstered by aggressive month-end buying by Tokyo exporters, though the currency may remain weak, traders said.
A record trade deficit, shrinking current account surplus and surprise policy easing by the Bank of Japan have combined to trigger what is set to be -- despite an apparent correction kicking in -- the yen's sharpest monthly drop in more than two years.
While traders think the weak yen trend would continue, for now the dollar was down 0.4 percent at 80.24 yen, slipping from the peak of 81.66 yen hit the day before.
"A pretty natural dip after the February spike is setting in and is amplified by Japanese exporters," said Sumino Kamei, senior analyst at Bank of Tokyo-Mitsubishi UFJ in Tokyo.
The dollar rally stalled a little above a strong technical resistance at 81.62 yen, marked by the 61.8 percent retracement of the slide from its 2011 high to that year's low.
Signs of improvement in the U.S. economy and higher oil prices have also weighed on the Japanese unit, which is still more than 5 percent weaker than at the start of the month.
Traders said these factors are intact and the yen's bounce may prove fleeting, as risk sentiment could be supported further by the European Central Bank's liquidity injection this week.
"The pullback is rather moderate right now and if we manage to stick above 80 yen for the rest of the day, we could see some more yen easing in the coming weeks," Bank of Tokyo-Mitsubishi UFJ's Kamei said.
Chart supports for the dollar are seen near 80.10 yen area, including Monday's low of 80.13 and tenkan line on the daily Ichimoku charts at 80.01.
Month-end flows from Japanese exporters also pushed the euro down to 107.58 yen, 0.4 pct lower compared to late New York levels and more than 2 yen below the four-month peak of 109.95 yen marked on Monday.
Support for the pair is seen at 107.75 yen, its 200-day moving average. Daily close below the level would be a bearish sign for the single currency.
WAITING FOR ECB
With the dollar on the backfoot against the yen, the euro managed to muscle in a little on the U.S. unit, but traders stayed on their toes ahead of more cheap cash from the ECB that could bolster risk appetite further.
News that Standard & Poor's cut its ratings on Greece to "selective default" barely lifted an eyebrow as Athens' efforts to lighten its debt burden was largely expected to trigger the downgrade, traders said.
The euro stood at $1.3410 versus $1.3397 late in New York, having retreated from a near three-month peak at $1.3487 set on Friday.
Immediate support for the common currency is seen in the $1.3357-66 area around recent lows, with $1.3291 marking the 38.2 percent retracement of the Feb. 16-24 rise.
A Reuters poll of money traders showed banks will take up half a trillion euros of ECB funds, roughly the same as the previous offering last year. This is seen as buying more time for authorities to sort out the sovereign debt crisis.
"Our best guess is in the 300-400 billion euros region and we would anticipate any short-term market reaction will be based on how much this take-up supports the recent risk rally," BNP Paribas analysts said.
"To this end, we would expect yen crosses to weaken further on a figure at or above our 'guess-timate', and to strengthen if the figure is announced around the 100-200 billion euros mark."
News of Greece's downgrade by S&P came just hours after the German parliament endorsed a second bailout for the debt-laden country with a comfortable 496-90 vote.
S&P said if Greece's debt exchange drew the required number of acceptances, it would upgrade its rating to CCC. However, the lack of a deal, which it expected by March 12, would likely result in an outright payment default.
The Australian dollar stood at $1.0760, from Monday's low around $1.0650, but remained tethered to the recent range of $1.0600-1.0845.
Focus on Tuesday will be on Italy's bond sale worth an estimated 6.25 billion euros.
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