* Euro subdued after Moody's cut EZ rescue fund ratings
* China official PMI rises to 7-month high, HSBC PMI due next
* AUD bulls eye retail sales data ahead of rate meeting
By Ian Chua
SYDNEY, Dec 3 (Reuters) - The euro suffered a bit of a setback on Monday in the wake of Moody's downgrade of the euro zone rescue fund late last week, but the Australian dollar fed off growing optimism about the economic health of its biggest export market, China.
Moody's on Friday cut its rating on the European Stability Mechanism (ESM) to Aa1 from Aaa, and maintained a negative outlook. It also lowered its provisional rating on the European Financial Stability Facility to (P)Aa1 from P(Aaa), citing a recent downgrade of France's sovereign rating.
Traders said the news was just an excuse to trim bullish positions on the euro, and there was a bit of follow-through selling first thing in Asia.
The euro eased to a low of $1.2973, retreating from a one-month peak of $1.3029 scaled Friday. It last stood at $1.2993, with support seen around $1.2888, the 38.1 percent retracement of its Nov 13-30 rally.
Against the yen, the single currency pulled back to 107.07 from a near eight-month high around 107.68.
In contrast, the Australian dollar drifted up to $1.0440, bouncing off a one-week low of $1.0402 set Friday. The move came after data on Saturday pointed to a pick up in momentum in the Chinese economy, Australia's most valuable export market.
China's official manufacturing purchasing managers' index rose to a 7-month high of 50.6 in November from 50.2 in October, following a preliminary private sector survey that showed factory activity reviving to a 13-month high.
HSBC will release its final PMI reading for last month later in the day.
The Aussie's rise is remarkable given that markets have priced in an 84 percent chance of an interest rate cut at home on Tuesday.
"Our assessment is that interest rates have not been cut enough to ensure that non-mining sources of demand will be strong enough next year to take over from a diminishing contribution to growth from mining investment," said Shane Oliver, chief economist at AMP Capital, who is expecting a 25 basis-point cut in the cash rate to 3.0 percent.
The Aussie's near-term fortunes hinge on retail sales data due at 0030 GMT. Analysts polled by Reuters expect a 0.4 percent rise on the month. Any weakness will surely bolster rate cut expectations.
Overall, market sentiment is still held up by hopes that U.S. politicians will strike a last minute deal to avert going over a looming fiscal cliff that will trigger automatic tax hikes for most Americans and deep spending cuts in early 2013.
But risks are growing that a deal may not be forthcoming this year, some analysts warned.
"Resolution of the U.S. fiscal cliff still seems some way off, and it is increasingly likely that a comprehensive agreement will be delayed into the new year, meaning the economy may go over the cliff in January only to be hauled back up again soon after," said Simon Hayes, analyst at Barclays Capital.