FOREX-Euro nears lows on Italy uncertainty, ECB outlook
* Euro near Friday's 2-1/2-month low of $1.2965
* Prospect of fresh Italy elections grows
* Growing bets on ECB rate cut this week
By Wanfeng Zhou
NEW YORK, March 4 (Reuters) - The euro hovered near a 2-1/2-month low against the dollar on Monday, pressured by political uncertainty in Italy and expectations the European Central Bank will cut interest rates sooner than previously anticipated.
Italy appeared to be inching toward another round of elections after an inconclusive election last week. Analysts are concerned that without a stable government, the country will be unable to pass reforms required to get its borrowing and debt under control.
Renewed worries about Italy - the euro zone's third-largest economy - rattled investors, sending euro zone sentiment down sharply in March and fuelling speculation the ECB will lower interest rates in the near term.
Although a Reuters poll last week showed economists expected the ECB to keep rates on hold this Thursday, some strategists said euro weakness would persist on expectations the ECB may revise down its growth outlook and consider earlier rate cuts.
"Needless to say, confidence in the stability or prospects for the euro zone is understandably deteriorating," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
The euro hit a session low of $1.2980, not far from a 2-1/2-month low of $1.2965 struck on Friday, after the euro zone sentiment data was released. The euro zone common currency was last down 0.1 percent on the day at $1.3007.
Stop-loss orders are cited below $1.2960 with reported option barriers at $1.2950, $1.2925 and $1.2900. A break below $1.2900 could take the euro towards its next support at $1.2844, its 200-day moving average at current prices.
The euro was also lower against the yen at 121.41 yen , a drop of 0.4 percent.
The economic outlook for the euro was glum and some analysts said poor euro zone services Purchasing Managers Index surveys on Tuesday and growth data on Wednesday could push the euro even lower if they fell below forecasts.
"There's growing speculation that the European Central Bank will show a greater willingness to push the benchmark interest rate to a fresh record low," said David Song, currency analyst at DailyFX in New York.
"The fundamental developments coming out of the euro area may continue to drag on the exchange rate should it highlight a weakening outlook for growth and inflation," Song added.
Some US$4.13 billion in euros changed hands using Reuters Dealing.
Investors discarded growth-linked currencies such as the Australian dollar after China announced measures to tighten curbs on the property market.
The Australian dollar fell to a near eight-month low of $1.0113 and was last down 0.3 percent on the day at $1.0168.
The dollar was down 0.2 percent against the yen at 93.33 yen with the session low at 93.15.
Joseph Trevisani, chief market strategist at WorldWideMarkets, Woodcliff Lake in New Jersey, said losses accelerated after going through stop-loss orders at 93.40, with support likely at 93.15 and 93.
Other central bank meetings and announcements this week include the Reserve Bank of Australia, the Bank of Japan, the Bank of Canada and the Bank of England.
The U.S. data highlight will be jobs data for February on Friday.
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