* Worries about coming earnings hurt risk sentiment
* Dollar index hits 1-month high
* Euro/dollar technical break could affect other currency pairs
By Chikako Mogi and Hideyuki Sano
TOKYO, Oct 10 (Reuters) - The euro dropped to its lowest since Oct. 1 against the dollar and the yen, as investors shied away from risk on concerns about weak earnings in the United States due to slowing global growth.
Asian shares followed a drop on Wall Street overnight, when technology stocks fell on brokerage downgrades of Intel and other major companies, as worries mounted about third-quarter U.S. earnings, which firms began reporting on Tuesday.
“Currencies will generally take their cue from stocks... Markets overnight turned against risk and whether that will be reversed will depend on how equities react to U.S. third-quarter earnings results,” said Junya Tanase, chief FX strategist at JPMorgan Chase.
On Wednesday, the euro slipped 0.3 percent to $1.2835 at one point, its lowest since the start of this month and coming close to an important technical support of its 200-day average at $1.2822. Some traders say the market is likely to test that level to trigger more stop-loss orders.
“If the 200-day average is broken, there will be selling from model players. I feel the market is likely to test that level,” said Takahiro Suzuki, vice president of forex at Nomura Securities.
Weak risk sentiment is likely to hurt growth-linked currencies such as the Australian dollar, which is also holding near an important chart support against the yen. The Aussie was quoted at 79.90 yen, just above strong support around 79.50 yen.
Against the U.S. dollar, the Aussie was flat at $1.0215 , above its three-month low of $1.0149 hit on Monday.
“If the euro breaks the 200-day average, then the Aussie/yen is likely to test its important support, so it could cause a cascade of market moves in many currency pairs,” Nomura’s Suzuki added.
As the euro sagged, the dollar index, measured against a basket of six key currencies, rose to a one-month high of 80.186, a gain of 0.3 percent from late U.S. trade.
Against the yen, the dollar was little changed at 78.20, , and its recent narrow trading band is helping to push down implied volatilities on dollar/yen options.
One-month volatility fell to around 6.4 percent, near recent support levels near 6.3 percent.
The International Monetary Fund cut global economic growth forecasts for 2012 and 2013 on Tuesday, justifying the recent round of central bank stimulus which aimed to support to the world’s fragile economies.
“In both the U.S. and Europe, stock markets remain on edge. The cut in IMF forecasts for growth across the globe in 2013 coincided with a drop, but it is worth noting that the IMF is usually very conservative and cautious,” said Mikayel Verdyan, an analyst at online broker Forex Club.
Uncertainty in the euro zone has hurt sentiment and capped the euro’s upside. Investors fret about when Spain will request a bailout to help streamline its huge public debts and when Greece will agree with its international lenders on terms for the next tranche of funds needed to keep that country afloat.
European Central Bank President Mario Draghi told the European Parliament on Tuesday that there was no alternative to continued budget cuts even as the euro zone economy faces a long, uphill road to recovery and the bloc is still suffering from a crisis of confidence.
Draghi also said the ECB’s new bond-purchase programme for troubled countries such as Spain would provide a backstop to avoid “destructive scenarios” in the 17-country euro zone.
On Greece, Draghi said the country has made progress on reforming its economy but has more work to do. German Chancellor Angela Merkel reaffirmed Berlin’s commitment to keep the debt-crippled nation inside Europe’s single currency but offered no concrete relief ahead of a new report on Greece’s reform progress due by next month.
Analysts say markets have become more resilient to negative news from the euro zone after the ECB unveiled the bond buying programme in September, and that when Spain requests external assistance, it could push the single currency higher.
Spanish government bond yields have stayed below critical levels seen unsustainable since the ECB’s bond programme was put in place. However, a lack of clear timing on a bailout nudged 10-year yields up 4.5 basis points to 5.78 percent on Tuesday.