* Euro falls, investors look to sell into euro/dollar rallies * Debt woes tame optimism over new Italy, Greece govts * Dlr/yen edges to lowest since Oct. 31 intervention By William James LONDON, Nov 14 (Reuters) - The euro fell against the dollar on Monday as initial optimism about prospects of crisis-fighting reforms under new governments in Italy and Greece gave way to caution over the huge debt problems still plaguing the single currency zone. On Sunday, Italy's president appointed former European Commissioner Mario Monti to head a new government charged with implementing urgent reforms to end a crisis that has endangered the whole euro zone. On Monday Italy sold 3 billion euros of five-year bonds at yields that, while down from last week's record market highs, were elevated enough to underscore the challenges the country's new technocratic government faces to restore market confidence, leaving many investors bearish on the single currency. After a modest rally in Asian trading, the common currency last stood at $1.3665, down 0.6 percent on the day having been briefly boosted by some relief following the debt auction. "When you have good news and the euro doesn't rally, you're probably going to be headed lower over the week... I'd say you're selling into rallies from $1.3750," said Geoff Kendrick, currency strategist at Nomura in London. Earlier the currency rose as high as $1.3811, with near-term resistance near its two-week high of around $1.3870 and offers from Asian sovereign investors cited above that. Traders cited sizeable options expiries at $1.3750. After Italy's 10-year bond yield soared to levels seen as unsustainable above 7 percent last week, markets remained nervous over the consequences of more pressure on the euro zone's largest government bond market. Some traders said that for the euro to post more gains, it would have to break past decent resistance at around $1.3870. "The fact that we have these technocratic governments in place is a positive, in that they'll press toward the sort of austerity measures required," said Simon Derrick, head of currency research at Bank of New York Mellon. "After a bit of consolidation we'll have the euro testing back up, and we'll be having a look at $1.3850 again in the not-too-distant future." In Greece, new Prime Minister Lucas Papademos begins the tough task of rebuilding Greece's credibility with financial markets by pushing through the tough austerity measures the country needs to stave off bankruptcy. YEN STRENGTHENING The euro was also lower against the yen, trading at 105.12 yen. The dollar eased against the yen to 76.811 , its lowest since Japan's Oct. 31 intervention. "People are gradually realising that another round of intervention isn't going to come... and so bids look like they're gradually being shifted lower (in dollar/yen)," Nomura's Kendrick said. Appearing to support Japan's recent currency intervention aimed at curbing excess volatility, the head of the International Monetary Fund said on Saturday the move was in line with the spirit of the G7 and G20. Traders said interventions, particularly unilateral actions such as Japan's, are unlikely to have a long-term impact and the dollar may slip on any signs of problems in the U.S. economy. The dollar index stood at 77.305, well off last week's high of 78.165. The Australian dollar fell to $1.0233 from a session high of $1.0351.