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FOREX-Easing expectations send euro lower

* Euro weakens before Thursday’s European Central Bank decision

* Canadian, New Zealand dollars both lower before policy meetings

* Struggle for direction after mixed messages from U.S. data

* Yen broadly higher (Recasts after start of European trade)

By Patrick Graham

LONDON, March 7 (Reuters) - The euro fell by around half a percent at the start of the run-in to a European Central Bank meeting on Thursday widely expected to ease monetary policy further to help shore up still shaky euro zone growth.

The ECB is expected to push interest rates further into negative territory and make some kind of adjustment to its bond buying programme, but after the bank disappointed many in markets in December, traders are loathe to bet more heavily against the single currency.

Positioning data on Friday showed the first rise in dollar “longs” - or bets it will rise - since mid-January, but mixed messages in Friday’s U.S. labour report and other data have largely halted further progress at around $1.0950.

Traders also said there had been a handful of big orders - possibly from corporate buyers - that had artificially lifted the euro on Friday. Against that, Monday’s fall only took it some of the way back towards last week’s low of $1.0825.

“I think there is still a higher likelihood that they overdeliver and the euro goes down to around $1.08, maybe the high $1.07s,” said Ulrich Leuchtmann, head of currencies research at Commerzbank in Frankfurt.

“But for traders it is still tricky. Clearly there will be a much bigger move if they do not deliver.”

The euro traded 0.5 percent lower on the day at $1.0957 at around midday in Europe. It fell 0.7 percent against the yen to 124.38 yen.

The Canadian and New Zealand dollars, also the subject of central bank meetings this week, were also both weaker, but losses against the yen kept the gain in the overall U.S. dollar index at just 0.25 percent.

The Australian dollar gained solidly against the kiwi on the back of improvement in prices for iron ore, one of Australia’s main exports. Dealers said that dynamic had supported the sharper 1 percent fall in the kiwi.

Nerves around Thursday’s ECB meeting centre around the variety of signals President Mario Draghi can send in a post-statement news conference.

“At about 11.5 basis points, the market looks marginally overpriced for the move in rates but all the big turbo stuff is likely to come in the press conference,” said Richard Benson, head of portfolio investment with currency managers Millennium in London.

“Its quite hard to know how to trade any tweak in the language or changes to the duration of assets, or capital keys. That, and the fact that a lot of the speculative community were blown out on Friday, may keep people more on the sidelines than they were in December.”

Options traders said pricing pointed to implied overnight volatility around Thursday’s meeting of around 35 percent, requiring a more than 1.5 cent move in the euro to break even . Big ECB meetings in the past year have generated up to several full cents of moves.

With stock markets - and European banking shares in particular - looking shakier after a third straight week of gains, the yen again benefitted from its perceived status as the safest haven from global financial jitters.

The dollar fell 0.2 percent to 113.59 yen after rising briefly to 114.25 on Friday following the employment report release, just over 2 yen above last month’s 16-month low below 111 yen. (Additional reporting by Shinichi Saoshiro)

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