* Euro skids across the board in initial Cyprus reaction
* Yen gaps higher as speculators caught short, USD follows
* Focus on Cyprus parliament vote, peripheral bond yields
By Wayne Cole
SYDNEY, March 18 (Reuters) - The euro skidded lower in Asia early on Monday as surprise news that Cyprus would have to tax depositors as part of a bailout plan was taken as setting a dangerous precedent that at worst could ultimately risk bank runs elsewhere in the region.
The single currency was changing hands at $1.2907 , down from $1.3054 late in New York on Friday. It sank against the yen to 122.27 yen, from around 124.54. And it fell on the Swiss franc to 1.2185 francs, from around 1.2275.
The yen shot higher across the board as speculative sellers were caught badly short of the currency. Borrowing in yen to buy higher yielding assets has been a heavily favoured trade in recent weeks on the expectation of more aggressive easing from the Bank of Japan.
Even the U.S. dollar fell back to 94.76 yen, from 95.38 late on Friday. The Australian dollar lost almost two full yen in whippy early trading before steadying at 97.97 . The U.S. dollar was up 0.6 percent against a basket of currencies to reach 82.736.
“The week was off to a chaotic start on the Asia open this morning after Saturday’s Eurogroup announcement on Cyprus’ bailout deal,” said analysts at JPMorgan.
“The fear will be that haircutting depositors in the Euro area renews deposit flight from peripheral banks.”
Euro zone leaders and Cyprus agreed on Saturday that depositors should be taxed up to 10 percent - 6.7 percent on amounts below 100,000 euros and 9.9 percent on figures above that - to raise 5.8 billion euros so the island country could be eligible for an international bailout.
Taxing depositors would be a major change from usual practice and could give depositors in other debt-ridden countries an incentive to shift their money to EU banks that would not be at risk, such as in Germany.
The news triggered a run on automatic cash machines in Cyprus on the weekend, depleting them within hours while it was unclear whether banks would open for business on Tuesday after a Monday bank holiday.
There was also a risk the Cyprus parliament would reject the tax proposal in a vote due on Monday. A source close to the consultations said Cyprus was in talks with international lenders on Sunday to possibly change the size of proposed levy’s on bank deposits.
Cyprus was discussing with lenders the possibility of changing the levy to 3.0 percent for deposits below 100,000 euros, and to 12.5 percent for those above that, the source said.
“The news on Cyprus may well elicit some negative euro reaction on the back of fears of capital flight from peripheral Europe, although if managed properly, it shouldn’t spark the start of a contagious bank run,” said Brian Martin, a senior strategist at ANZ in London.
“We do not think this will cause a sustained run on bank deposits in the euro area, as Cyprus appears a special case.”
Still, for the moment he recommended selling the euro against the Swiss franc, yen and sterling, and selling bonds from EU periphery countries.
He noted one early sign that the Cyprus deal was causing contagion would be a widening in peripheral bond spreads.