September 1, 2014 / 8:02 AM / 3 years ago

FOREX-Euro struggles near lows, hamstrung by ECB and Ukraine turmoil

(Adds quote, details about euro zone PMIs)

* Speculators add to huge bets against euro

* EU threatens Russia with new trade sanctions

* SNB head says bank ready to intervene to defend cap

By Anirban Nag

LONDON, Sept 1 (Reuters) - The euro hit a year-low against the dollar on Monday, as investors added to bets against the single currency before a policy meeting this week and as worries about the crisis in Ukraine kept alive risks to the euro zone's economic recovery.

The euro fell as far as $1.3119 in Asia, reaching lows not seen since early September 2013. It last traded at $1.3128, flat on the day. It hit a five-week low against the British pound of 78.96 pence, down 0.2 percent on the day and was trading not far from recent three-week lows against the yen.

Ukrainian President Petro Poroshenko warned a "full-scale war" was imminent if Russian troops continued an advance in support of pro-Moscow rebels as Europe and the United States threatened Russia with new sanctions.

Analysts said the risk to euro zone growth posed by the Ukraine conflict and stubbornly low inflation should keep the pressure on the European Central Bank to provide further stimulus at some stage, if not this week.

"There are a many reasons to continue selling the euro," said Lutz Karpowitz, currency strategist at Commerzbank. "First of all, the escalating situation in Ukraine, which might lead to further sanctions, thus increasing the risk of the euro zone economy being affected by the crisis. Even more importantly is the ECB rate meeting."

While Commerzbank does not expect the ECB to announce asset purchases, or quantitative easing, when the governing council meets on Thursday, the uncertainty about further policy action is likely to keep the euro on the defensive, Karpowitz added.

The euro started September on a subdued note after posting its second straight month of losses versus the greenback in August, when it slid 1.9 percent following a 2.2 percent drop in July. In fact, speculators' short positions against the euro are near their highest in two years.

Analysts at Barclays said it was too soon for the ECB to announce new policy measures, given that the two most powerful policies announced in June are not yet deployed. ECB announced targeted long-term repo operations and asset-backed securities purchases in June that are set to be deployed in coming weeks.

"But a minority of market participants expect new policy at this week's meeting. As a result, inaction may be greeted by temporary relief from euro depreciation, but we would see any short-term rallies as a selling opportunity," they wrote in a note.

The euro held steady above a near two-year low versus the Swiss franc after the head of the Swiss National Bank (SNB), Thomas Jordan said it stood ready to intervene in the currency market to defend its cap on the franc.

The euro last stood at 1.2063 francs, staying above last week's low of 1.2049 on trading platform EBS, its lowest level versus the Swiss franc since late 2012. The SNB introduced a 1.20 per euro cap in 2011 to prevent the franc's strong appreciation from further hurting the economy, although it has not had to defend the cap for the last two years.

Despite the global political tension, there was no meaningful safe-haven bid for the yen. That saw the dollar edge up 0.1 percent to about 104.15 yen.

The U.S. Labor Day holiday on Monday could dampen market activity. Moves among major currencies were subdued ahead of policy reviews by central banks in the euro zone, Japan, Britain, Canada and Australia, all of which are coming up this week. (Additional reporting by Masayuki Kitano; Editing by Alison Williams)

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