FOREX-Yen & sterling slump, euro eyes Italy elections
* Yen hit by news that two doves chosen to lead BOJ
* Sterling weighed by Moody's downgrade of Britain
* Euro flat, but upside seen capped by Italy elections
* Aussie falls after soft China data
* Dollar/yen up 0.7%, cable down 0.3%, Aussie 0.5%
By Ian Chua and Hideyuki Sano
SYDNEY/TOKYO, Feb 25 (Reuters) - The yen skidded to a 33-month low against the dollar on Monday as speculation strengthened that the Japanese government is set to name two strong supporters of aggressive monetary easing to top posts at the central bank.
Britain's sterling, meanwhile, lost ground against major currencies, following Moody's downgrade of the country's prized triple-A sovereign rating late on Friday.
Haruhiko Kuroda, the President of Asian Development Bank, is likely to be nominated as Bank of Japan governor, sources told Reuters, fueling expectations of looser policy.
Prime Minister Shinzo Abe is also seen filling one of two deputy governor posts with Kikuo Iwata, an academic critical of BOJ policy and an advocate of unorthodox monetary easing steps, Japanese media reported.
"Kuroda is a fan of a weaker yen and of deflation-bashing," said Kit Juckes, strategist at Societe Generale.
The dollar shot up to 94.77 yen , from 93.39 yen late in New York Friday, reaching highs not seen since May 2010.
The greenback gave up some of the gains on heavy selling near 95 yen, but it was still up 0.7 percent from late U.S. level to stand at 94.12 yen.
As the dollar has risen already nearly 20 percent against the yen in the past three months or so on expectations of BOJ easing, some traders think the pace of the yen's fall will likely slow.
"We are likely to see a more moderate and gradual fall in the yen from here. At the end of the day, whoever leads the BOJ, policy options the bank has are more or less the same," said a trader at a Japanese bank.
The euro jumped to as high as 125.25 against the yen from 123.12, but remained shy of its 34-month peak of 127.71 set early this month and last stood at 124.07 yen.
Traders also took aim at sterling, pushing it to a 31-month low of $1.5073 and a 16-month low of 0.8775 pound per euro. The pound last stood at $1.5124, down 0.3 percent from late last week.
Moody's cut Britain's rating by one notch to Aa1 from Aaa, citing weak prospects for economic growth. Britain joined the United States and France in having lost its triple-A rating from at least one major agency.
The rating outlook is now stable, meaning any further change is unlikely for the next year or so, but sterling is still seen under pressure because of expectations the Bank of England could expand its quantitative easing further to bolster the fragile UK economy.
As the yen and sterling fell, the dollar's index against a basket of major currencies rose to highest level since early September. The dollar index rose to as high as 81.642.
The euro held flat at $1.3183, a tad above a six-week low around $1.3145 hit on Friday, but its further upside is seen limited for now as investors eye an unpredictable election in Italy.
Exit polls will be published shortly after polls close at 1400 GMT on Monday. Full official results are expected by early Tuesday.
A weak government could usher in new instability in the euro zone's third largest economy and cause another crisis of confidence in the European Union's single currency.
The Australian dollar took a beating after the HSBC flash purchasing managers' index (PMI) for February slipped to 50.4, the lowest in four months, suggesting growth in China's giant manufacturing sector pulled back from two-year highs hit in January.
The Aussie fell 0.5 percent to $1.0265, edging closer to four-month low of $1.0221 hit last week.
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