FOREX-Euro stays near 4-month low, yen unmoved by BOJ tankan
* Euro hurt by concerns about Cyprus deal, Italian politics
* Investors focus on BOJ moves at April 3-4 meeting
* BOJ tankan:improvement in sentiment tad weaker than f'cast
TOKYO, April 1 (Reuters) - The euro started the quarter on a weak note on Monday, staying near a four-month low on worries that the euro zone's rescue for Cyprus might have opened a can of worms and as Italy struggles to find a way out of its political impasse.
The yen was little moved by the Bank of Japan's tankan survey, which showed Japanese business sentiment had improved slightly less than anticipated, as investors looked ahead to the central bank's policy meeting later this week.
The euro traded at $1.2801, down about 0.1 percent from late Asian trade on Friday and near a four-month low of $1.2750 hit on Wednesday. European and U.S. markets were closed for a holiday on Friday.
Having steadily descended from a 14-month peak of $1.3711 hit in February, the euro has major support around $1.2680, a 61.8 percent retracement of its July-February rally. But a break there could open the way for a test of last year's low near $1.20.
Against the yen, the common currency fetched 120.68 yen , not far from a one-month low of 119.745 yen hit on Thursday and off a three-year high of 127.71 yen hit in February.
At the weekend, the Cypriot central bank confirmed that major depositors in Cyprus's biggest bank would lose around 60 percent of savings over 100,000 euros, well above initial talk of a cut of 30 to 40 percent.
"I don't think cuts in deposits would be applied to every other country in the euro zone. Still, investors will see some risk and there are also some issues with Italy, so the euro is likely to head toward $1.25," said a trader at a European bank.
Investors fear the shock of deposit cuts could tempt savers in other fragile euro zone countries to shift funds to German bunds and other safe assets, unwinding months of fund flows of the opposite direction.
In Rome, President Giorgio Napolitano summoned 10 "wise men" to propose a series of urgent measures that could be backed by all parties, as he tries to end the standoff preventing a new government being formed more than a month after elections.
But the move, in line with a long tradition in Italian politics, offered little hope of overcoming the deep divisions among the parties.
The yen barely moved after the BOJ's tankan survey, which also showed companies' capital spending plans were much weaker than economists had expected, even as Prime Minister Shinzo Abe's push for easy monetary policy has boosted Japanese share prices over the past few months.
"The weak capex plans suggests that companies do not feel confident about spending even though 'Abenomics' has boosted markets," said Yunosuke Ikeda, senior currency economist at Nomura Securities. "In the past, when companies were bullish on spending, Japanese investors became eager to take more risks in foreign bond investment, so the data was mildly negative for the dollar/yen."
The dollar traded at 94.30 yen, almost flat on the day, but above its March 18 low of 93.45 yen, supported by expectations of strong easing from the Bank of Japan at its monetary policy review on April 3-4.
The BOJ is widely expected to scale up its bond buying and to extend the maturities of the bonds it purchases under new Governor Haruhiko Kuroda.
"Much of the aggressive easing has been already priced in and the dollar could fall below 94 yen on profit-taking. Still, investors will focus on the contrast between the BOJ, which is to expand stimulus, and the Fed, which is seeking an exit from stimulus," said Ikeda, adding that the dollar is likely to remain well-supported.
The dollar has risen 20.9 percent in the last two quarters, rising as high as a 3-1/2 year high of 96.71 yen last month as investors bet on a radical shift in the BOJ's policy manoeuvring.
The Aussie was subdued at $1.0407, down slightly from late last week and off a two-month high of $1.0497 hit last Tuesday.