FOREX-Euro steadies after hitting two-yr lows
* Euro rebounds from early drop after stops triggered
* Poor U.S. job data adds to risk aversion
* Aussie shrugs off benign China inflation data
By Lisa Twaronite
TOKYO, July 9 (Reuters) - The euro steadied after dropping to a two-year low against the dollar early on Monday, with little expected to emerge from a meeting of euro zone financial leaders later in the session.
The financial meeting will focus on follow-up steps to European leaders' plan revealed last month to shore up indebted states and banks, but the latest talks may only highlight the initial deal's limitations.
"If leaders couldn't agree on details, there's little chance that the finance ministers will reach any further agreement, so anyone betting on another positive surprise might be disappointed," said Kimihiko Tomita, head of foreign exchange for State Street Global Markets in Tokyo.
The single currency traded as low as $1.2225 in thin early trade as stops were triggered, but recovered to $1.2293. On the upside, stop-loss orders were said to be placed around $1.230.
The euro slipped to around $1.2260 on Friday after the U.S. Labor Department reported that employers created only 80,000 jobs in June, far fewer than needed to bring down the 8.2 percent unemployment rate. The jobs report added to evidence that Europe's debt crisis was weighing on global growth.
The U.S. data came a day after the European Central Bank's move to cut its target interest rate to 0.75 percent from 1.0 percent and its deposit rate to zero from 0.25 percent.
The ECB's rate cut raised expectations that funds will flow out of Europe. JGBs, with their perceived low risk, could benefit from such flows, which could give the yen an additional lift, market participants said.
The price of 10-year Japanese government bond futures rose to their highest level since October 2010 on Monday.
Against the yen, the euro touched a one-month low at 97.48 yen, before rising back to 97.92 yen.
The dollar also slipped slightly against the yen to 79.70 yen, moving away from a two-week high of 80.099 yen hit on Thursday but above session low of 79.42 yen. Support is said to be at the pair's 200-day moving average at 78.97 yen.
Data released early in the session showed Japan's core machinery orders fell at a record pace in May, but the foreign exchange reaction was muted because it failed to change expectations that the Bank of Japan will stand pat on policy at its meeting this week.
With no clear signs yet that Japan's recovery prospects are under threat, the central bank sees little reason to ease further unless a sudden spike in the yen hits business sentiment.
Commodity currencies were still pressured by the grim U.S. jobs numbers, although they escaped with relatively modest losses. The Aussie dollar was at $1.0185, down from a two-month high of $1.0330 hit last week but off a session low of $1.0175.
The Aussie largely shrugged off Chinese data showing that annual consumer inflation in Australia's single biggest export market cooled to 2.2 percent in June from May's 3.0 percent, giving Beijing more scope to ease monetary policy to support growth without stoking price pressures.
More threatening to Aussie-dollar bulls could be Chinese gross domestic product data due on Friday, with a Reuters poll forecasting China's economy grew 7.6 percent in the second quarter compared with the same three months of 2011. That would mark a pronounced slowdown from the previous period's 8.1 percent year-on-year growth, and would be the slowest quarter of expansion since the first three months of 2009.
But the Aussie held its ground against the beleaguered euro, which bought A$1.2058, not far from its lifetime low of A$1.2002.
With the euro languishing, the dollar index remained firm at 83.273, not far off a June 1 peak of 83.542. A break there would take it back to highs not seen since mid-2010.
This week, markets will be keeping a close eye on the U.S. Federal Reserve's June minutes, to be released on July 11, for clues on further easing options.
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