* Euro falls to near Friday’s 2-1/2 month low
* Shared currency hurt by weak euro zone data
* Growing bets on ECB rate cut this week
By Anooja Debnath
LONDON, March 4 (Reuters) - The euro fell on Monday on growing belief that euro zone economic worries could prompt the European Central Bank to cut interest rates sooner than previously expected.
Although a Reuters poll last week showed economists expected the ECB to keep rates on hold this Thursday, some strategists said euro weakness would persist on growing expectations bank chief Mario Draghi would hint at future cuts.
Poor euro zone sentiment and unemployment data since last week could compel the ECB to revise down its outlook for the currency bloc’s economy and consider earlier rate cuts, they said. Data on Monday showed euro zone sentiment tumbled in March on renewed political uncertainty in Italy.
Italy’s inconclusive election last week also weighed on the currency. Analysts are concerned that without a stable government, the country will be unable to pass reforms required to get its borrowing and debt under control.
“The ECB will be in defensive mode and they may cut rates this meeting, while the political uncertainty in Italy is a good reason to be bearish on the euro, which could tend to trade lower,” said John Hardy, currency strategist at Saxo Bank.
The euro hit a session low of $1.2982, not far from a 2-1/2 month low of $1.2966 struck on Friday, after the euro zone Sentix data was released. The shared currency was last down 0.2 percent on the day at $1.2995.
Traders said option expiries at $1.3000 could keep the euro pinned around that level on Monday and any rebound would be short-lived as the euro would be sold at higher levels.
Stop loss orders are cited below $1.2960 with reported option barriers at $1.2950, $1.2925 and $1.2900. A break below $1.2900 could take the euro towards its next support at $1.2850, its 200-day moving average.
Demand for options betting on euro weakness persists. The benchmark one-month risk reversal, which measures the relative demand for put and call options, was dealt at around 1.35 vols in favour of euro puts - bets that the currency will fall.
Citi said it had recommended investors add a three-month euro put/dollar call option, targeting $1.27.
Overall the outlook for the euro was glum and some analysts said poor euro zone services Purchasing Managers’ Index surveys on Tuesday and growth data on Wednesday could push the euro even lower if they fell below forecasts.
“The euro is down on a general risk-off mood ... Draghi could be more dovish and there could be a rate cut this week. If not, he could signal something is in the offing,” said Jane Foley, senior currency strategist at Rabobank.
The weak euro zone data contrasted with a jump in U.S. manufacturing activity and this helped push the dollar to a six-month high of 82.509 against a basket of currencies on Friday. It last stood at 82.387, up 0.1 percent on the day.
Broad U.S. spending cuts that automatically kicked in on Friday and threaten to dampen economic growth have so far not hurt the U.S currency. In fact, currency speculators’ bets in favour of the more liquid dollar surged in the week ending Feb. 26.
Spreads between two-year U.S. government bonds over their German counterparts have also moved in favour of the former, helping the dollar. Investors are expecting the Federal Reserve to slow its asset purchase programme later in the year as the U.S. jobs market shows signs of improvement.
“We’re turning bearish euro/dollar,” said George Saravelos, currency strategist at Deutsche Bank. “Even if Fed QE continues throughout 2013, U.S. two-year yields will turn up this summer and there’s little additional good news that can be priced into the euro.”
Investors discarded growth-linked currencies such as the Australian dollar after China announced measures to tighten curbs on the property market.
The Aussie fell to a near eight-month low of $1.0116 and was last down 0.7 percent on the day at $1.0140.