* Euro hits strongest since Feb 2012 vs dollar
* Euro continues to rise after ECB meeting last week
* Japan PM comments add to expectations of aggressive BOJ easing
* Yen hits 2-1/2 year low versus dollar, 20-mth low versus euro
By Jessica Mortimer
LONDON, Jan 14 The euro hit an 11-month high against the dollar on Monday and extended gains versus the yen as Japan put more pressure on its central bank and the European Central Bank dampened the chances of a euro zone rate cut.
A more positive stance from euro zone policymakers left room for further gains in the euro, traders and analysts said, especially given the contrast with expectations for aggressive monetary easing in Japan.
Japanese Prime Minister Shinzo Abe said on Sunday the central bank must set 2 percent inflation target as a medium-, not long-term objective. This pushed the yen to a fresh 2-1/2 year low against the dollar and 20-month low against the euro.
ECB President Mario Draghi last Thursday suggested an interest rate cut was off the agenda for now and pointed to signs of improvement in the euro zone economy and in financial markets.
The euro was up 0.1 percent against the dollar at $1.3360, having earlier risen as high as $1.3404, its strongest since late February 2012.
Technical analysts said the euro's firm break above chart resistance at $1.33, a level it failed to breach in mid-December and again in early January, left scope for more gains.
"Given the correlation between the euro and equity markets, the euro should trade higher, towards $1.35 or $1.36, though levels between $1.35 and $1.40 start to look expensive and that's not what the euro zone needs right now," said Richard Falkenhall, currency strategist at SEB.
"There are small positive signs coming from the euro zone which Draghi pointed at, and this caught the market."
Against the yen, the euro was up 0.4 percent at 119.40 yen , having earlier hit 120.13 yen, its highest since May 2011. This came on top of a rise of more than 3 percent last week.
SEB's Falkenhall said improvements in euro sentiment since the ECB announced a plan last year to buy the bonds of indebted countries was contributing to the trend of yen weakness, as previously the yen had gained on the back of euro zone worries.
Market players will watch for the release of euro zone industrial output data at 1000 GMT, which is expected to show a small rise of 0.1 percent during November. A weak number, however, could dampen the euro's rally and highlight the fragility of the euro zone economy.
Traders said the euro had rallied strongly during Asian trade and could be due a pullback, although most expected it to continue gaining.
"I wouldn't be surprised if we see a small retracement, but I think the euro will stay bid overall and any dips will be met by good buying interest," a London-based trader said.
The dollar was up 0.25 percent at 89.41 yen, having earlier breached an options barrier at 89.50 yen to hit 89.67 yen, its highest since June 2010.
But it could struggle ahead of another reported options barrier at the psychologically key 90.00 yen level.
"The confirmation that there's going to be a push for a new (BOJ) governor, that new governor is going to have a mandate of 2 percent inflation, that plus the fiscal stimulus is a major negative for the yen," said Callum Henderson, global head of FX research for Standard Chartered Bank in Singapore.
Japan last week approved a $117 bln stimulus package, the biggest spending boost since the financial crisis, to try and support the economy.
Rob Ryan, strategist for RBS in Singapore, said the dollar could retreat against the yen after the BOJ's policy meeting next week, if its policy decision is regarded as a disappointment.
"The positioning is pretty stretched at this stage," Ryan said, adding expectations for the BOJ meeting were "sky high".
Later on Monday, investors will turn their focus to a speech by U.S. Federal Reserve Chairman Ben Bernanke for any hints on how long the Fed's asset-buying programme will last.