FOREX-Euro dips on Italian politics, may slip further
* Euro slides after Monti's offer to quit raises uncertainty
* German trade data, ECB rate cut prospects hurt euro
* Fed meeting on Wednesday significant for dollar
LONDON, Dec 10 (Reuters) - The euro dipped against the dollar on Monday as political turmoil in Italy and weak German data stoked concerns about the region's deteriorating near-term outlook. More weakness was seen likely as euro zone peripheral bond yields widened over their German counterparts after Italian Prime Minister Mario Monti said over the weekend he would resign once the 2013 budget was passed. An election in February looks likely, raising questions over who will navigate the euro zone's third-biggest economy out of the debt crisis The euro was down 0.1 percent on the day at $1.2905, not far from a two-week low of $1.2876 set last Friday. Traders cited stop-loss orders above $1.2920 and near-term support at $1.2842, its 233-day moving average. The euro posted its biggest weekly losses against the dollar in a month last week, as speculators bet against the single currency on expectations that the European Central Bank will cut interest rates early next year. "I am actually surprised the euro is not lower than where it currently is. It is not a complete shock as Monti had lost support from (former Prime Minister Silvio) Berlusconi's party but the timing is surprising," said Audrey Childe-Freeman, head of foreign exchange strategy at BMO Capital Markets. "It is disappointing as Monti had gained significant credibility in the markets over the last 12 months and now the whole thing is been questioned." Italy has nearly completed its planned bond market funding for this year but will need to borrow around 420 billion euros in 2013. Italian borrowing and default insurance costs rose on Monday, also pushing Spanish 10-year yields higher. Along with peripheral euro zone worries, concerns about core countries also weighed on the euro. Data on Monday showed Germany's trade surplus was its narrowest in over half a year in October after falling demand from its recession-hit European trade partners hurt its exports. The Bundesbank last week slashed its growth outlook for Europe's largest economy to 0.4 percent in 2013 from an early estimate of 1.6 percent.
FED FOCUS The dollar drew support from strong U.S. jobs data last Friday, which showed firms had increased hiring, though caution about fresh monetary easing steps from the Federal Reserve later this week limited its advance. "People are just positioning themselves for the last decent week we could have in terms of data before getting into the Christmas period," said David Bloom, global head of FX research at HSBC. "The Fed meeting will be important." Many economists expect the Fed will announce on Wednesday monthly bond purchases of $45 billion, signalling it will keep pumping money into the economy during 2013 in a bid to bring down unemployment. Signs Washington policymakers are no closer to averting tax hikes and spending cuts set to take hold next year, which analysts say could push the U.S. economy back into recession, also weighed on the dollar. President Barack Obama met Republican leader John Boehner on Sunday to discuss ways to avoid the "fiscal cliff" but a resolution remained elusive. The dollar fell 0.2 percent on the day to 82.25 yen. Data showed speculators' net yen short positions last week rose to their highest since mid-2007. With short bets already stretched, traders said it would be difficult for the dollar to advance against the Japanese currency.