* Markets brace for euro zone debt sales
* Euro hits fresh 11-year low vs yen
* Aussie dollar drops as retail sales disappoint
* Euro/Aussie pulls up from last week’s record low
By Masayuki Kitano
SINGAPORE, Jan 9 (Reuters) - The euro hit a 16-month low versus the dollar and an 11-year trough against the yen on Monday following a slew of negative news from the euro zone over the weekend.
Markets were also bracing for debt sales from Spain and Italy on Thursday and Friday, seen as a major test of investor willingness to plough more money into the region’s troubled countries following recent steps to address their debt problems.
The euro fell to as low as $1.2666 on trading platform EBS, its lowest level since September 2010. Against the yen it dropped to as low as 97.28 yen, its lowest level since December 2000.
The single currency later trimmed some of its losses and last stood at $1.2694, down 0.2 percent from late U.S. trading on Friday and was changing hands at around 97.65 yen, down 0.3 percent.
“We have revised down our 3-month EUR/USD forecast to 1.25 and during the initial quarter of this year do not expect investors to stray far from their long USD positions,” Jane Foley, senior FX strategist at Rabobank, wrote in a client note.
“Insofar as 2012 has opened to a chorus of concerns as to whether EMU can even stay the course this year, we expect investors to continue hunting diversification trades. EUR/JPY, EUR/AUD and EUR/CAD are all likely to see further downside in Q1.”
U.S. jobs data released last Friday highlighted the diverging growth outlook between the United States and Europe, suggesting further weakness in the euro/dollar pair.
The newsflow from Europe over the weekend was also far from inspiring. German magazine Der Spiegel reported on Saturday the International Monetary Fund was losing confidence in Greece’s ability to clean up its public finances and work off its mountain of debt.
Stop-loss selling helped accelerate the euro’s drop on Monday, market players said.
Underscoring the bearish view on the euro, currency speculators boosted short positions in the currency to record levels in the week ended Jan. 3, data from the Commodity Futures Trading Commission showed on Friday.
One support area for the euro lies near $1.2600, roughly the 76.4 percent retracement of its June 2010 to May 2011 rally.
After having finished 2011 some 13 percent below its 2011 high near $1.4940, the euro has started 2012 on a weak note, having shed 2.1 percent so far in January.
The euro’s drop so far in 2012 has been driven by selling in euro crosses such as euro/Aussie and euro/yen as well as euro/Asia, said Rob Ryan, FX strategist for BNP Paribas in Singapore.
“Positioning is beginning to get a little stretched at this stage,” Ryan said. “I think we’re risking some pretty fast reversals of these moves.”
Still, the single currency is unlikely to see a sustained rebound unless the euro zone’s economic outlook improves, Ryan said, adding that the euro could fall to $1.25 in coming months.
“We need to see the (euro zone‘s) economic data halt its slide and I think we need to see banks start to lend to each other. Neither of those are going to happen overnight,” he said.
Market players are worried that euro zone countries will have a hard time making progress on fiscal consolidation unless the region’s economic outlook improves.
The euro did manage to regain some ground versus the Australian dollar, rising 0.4 percent to A$1.2475 and pulling away from a record low of A$1.2408 hit last week.
Weaker-than-expected Australia retail sales weighed on the Australian dollar and gave an added boost to the euro/Aussie cross.
Against the greenback, the Australian dollar fell 0.6 percent to $1.0172.
Australian retail sales were flat in November, disappointing hopes that lower interest rates would give a boost to demand and adding to the case for a further cut next month.
The dollar held steady against the yen at 76.95 yen .