* Euro rally from Friday's U.S. jobs data fades * World Bank warns on China; Aussie dollar hits 3-month low * Spain tops agenda as euro zone finance ministers meet By Wanfeng Zhou NEW YORK, Oct 8 The euro retreated from two-week highs against the dollar and yen on Monday as worries about Spain weighed even as euro zone officials gathered in Luxembourg to launch the region's bailout fund. Rising concern about the global economy after the World Bank scaled back its forecast for East Asia and about corporate earnings also drove investors into currencies perceived as safe havens. The euro had hit two-week highs on Friday after an unexpected drop in the U.S. jobless rate sparked selling of less risky assets such as the dollar and yen. Euro zone finance ministers will formally launch the region's 500-billion-euro bailout fund at a meeting on Monday, which will bolster the region's defenses against the sovereign debt crisis. The meeting comes as investors focused on whether and when Spain will request aid as it struggles to manage its public finances and recapitalize banks and ahead of a summit of EU leaders on Oct. 18-19. "The illiquidity in markets because of holidays in Japan and North America is causing investors to scale back some of their major positions from last week," said Ravi Bharadwaj, pricing and market analyst at Western Union Business Solutions in Washington. "We also have a euro zone finance ministers meeting today as well as a smaller version of the EU summit next week, and I think market participants don't have very high hopes about the general outcomes from those meetings." Investors were cautious as the third-quarter earnings season gets under way and after the World Bank cut its growth forecasts for the East Asia and Pacific region, warning a slowdown in China could get worse. The euro fell 0.5 percent to $1.2973, down from Friday's two-week high of $1.3071 set on Reuters data. Against the yen, it lost 1 percent to 101.48, retreating from a high of 102.80 on Friday. Traders reported selling by a U.S. investment bank, with a break through its 200-day moving average around 101.75 yen accelerating the move. "There is some general risk aversion stemming probably from numerous reports that Q3 earnings reports will be poor," said Rabobank analyst Jane Foley. Some strategists said the potential for positive headlines from this week's meetings of euro zone finance ministers and the International Monetary Fund could provide a boost to the euro. Morgan Stanley advised buying the euro at $1.2950, with a target of $1.3400 and a stop at $1.2870. The euro has climbed more than 7 percent since hitting a two-year low of $1.2040 in late July, bolstered by hopes of European Central Bank action to help quell the region's debt crisis. The higher-yielding Australian dollar dropped to a three-month low of $1.0149, before recovering to $1.0190, up 0.1 percent on the day. The Aussie dollar is particularly sensitive to the outlook for Chinese growth. The dollar fell 0.6 percent to 78.20 yen. It reached a session peak of 78.87 yen on Friday, on Reuters data. "The impression I get is just above 79 there's a lot of sellers," said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong. According to a business sentiment survey published by the Bank of Japan last week, the average dollar/yen exchange rate assumption that major Japanese manufacturers are using in their business plans for the six months to March 2013 is 78.97 yen. That suggests Japanese exporters may want to sell the dollar if it rises beyond that threshold, although they are unlikely to be active on Monday, with Japanese markets also closed for a holiday.