NEW YORK (Reuters) - The euro posted its first weekly drop against the dollar and yen in three weeks on Friday as investors refocused on the uncertainty surrounding possible European Central Bank action to contain the debt crisis and deteriorating growth in the euro zone.
A weaker-than-expected rise in Chinese exports, which followed disappointing German data earlier this week, stoked concerns about global economic growth. That boosted the safe-haven dollar and yen and pressured commodity-linked currencies such as the Australian and Canadian dollars.
Investors booked profits on a rally sparked by ECB President Mario Draghi, who said the bank would do whatever it takes to save the euro, including buying bonds of stressed countries to bring down borrowing costs.
But after the initial euphoria, markets began to realize that any intervention would depend on troubled countries activating the euro zone's rescue funds first. The permanent ESM fund still needs a green light from the German Constitutional Court, which rules on September 12.
"The resistance of German lawmakers and central bankers to wholesale central bank intervention in sovereign debt markets is likely to result in a watered-down version of any plan by the ECB and is likely to disappoint market participants," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
The euro fell 0.1 percent to $1.2290, pulling further away from a one-month high of $1.2443 set on Reuters data on Monday. It had earlier hit a one-week low of $1.2239 after breaking support in the $1.2250 level.
It also fell 0.5 percent to 96.21 yen.
On the week, the euro lost 0.8 percent against the dollar and 1.3 percent versus the yen.
Data from the Commodity Futures Trading Commission released on Friday showed speculators reduced bets against the euro in the latest week to 131,711 contracts from 138,994 in the week earlier.
Comments from Germany's economy ministry that the country faced "significant risks" linked to the euro zone crisis also weighed on the region's common currency.
Investors also looked ahead to next week's data on euro zone second-quarter economic output, which is expected to show a contraction and is likely to put pressure on the ECB to cut interest rates, a factor that could weigh on the euro.
Despite the euro's fall, implied volatilities are subdued. The one-month euro/dollar implied volatility traded around 9 percent, against 10 percent a week ago. Option traders said that unless the euro broke below $1.2250, volatility would drift lower.
Lucy Lillicrap, senior risk consultant at global payments company AFEX Markets Plc in London, said the euro's downtrend this year may be coming to an end, and a rise to $1.2750 would confirm this view.
"Overall, the markets are willing to give the ECB the benefit of the doubt. The ECB is out there saying it will do something and that in itself is a positive," she said.
The dollar slid 0.4 percent to 78.25 yen and lost 0.4 percent this week.
Japan's upper house of parliament passed a controversial sales tax bill, a step analysts said could eventually exert pressure on the Bank of Japan to ease monetary policy further in coming months.
The Canadian dollar weakened after data showed Canada's economy unexpectedly lost 30,400 jobs in July in a third disappointing month for the labor market.
The U.S. currency rose as high as C$0.9970 and last traded at C$0.9910, little changed on the day.
The Australian dollar fell to $1.0575, a day after touching $1.0615, its highest since March 20.
Data showed Chinese exports grew just 1.0 percent in July year-on-year, below expectations for an 8.6 percent increase, while imports grew 4.7 percent compared with a forecast for a 7.2 percent rise.
(Additional reporting by Gertrude Chavez-Dreyfuss; editing by Dan Grebler, Gary Crosse)