(Reuters) - The dollar touched a fresh two-week high against a basket of major currencies in Asia Monday, benefiting by default as both the euro and yen appeared to be used as funding currencies to buy higher yielding assets.

Since the European Central Bank second injection of around half a trillion euros of cheap three-year funds last week and a surprise policy easing by the Bank of Japan a few weeks ago, both currencies have come under pressure.

That has seen the dollar climb to its best level since mid-February, recovering from a slide to a three-month trough. The dollar index <.DXY> last stood at 79.459, having reached a peak of 79.500.

BNP Paribas analysts said the theme at play was the notion that hedge funds and real money accounts were switching their allegiances with regards to favoured funding currencies, from the U.S. dollar to the euro and to a lesser extent the yen.

Hard data showed currency speculators have turned short on the yen for the first time since at least September, according to latest figures from the Commodity Futures Trading Commission.

We see further U.S. dollar strength versus the euro, yen and sterling, Barclays Capital analysts wrote in a report.

The main risks to our cautiously constructive outlook continue to be Europe, weaker-than-expected Chinese data and higher oil prices. We continue to like Canadian dollar and Mexican peso, but are less confident about a further rally in the Australian dollar in the near term.

The euro bought $1.3195 on Monday, well down from last week's high of $1.3485. Support is seen around $1.3170, the 61.8 percent retracement of the Feb 16-24 rally from $1.2973 to $1.3486.

Not helping the single currency, Spain on Friday set itself a softer budget target for 2012 than originally agreed under the euro zone's austerity drive, putting a question mark over the credibility of the European Union's new fiscal pact.

Comments from the Austrian Chancellor that Greece's second bailout may prove insufficient and a topping up of the euro zone's permanent bailout fund cannot be ruled out, also reminded investors that Europe's debt crisis was far from over.

The euro zone will decide whether to increase its debt crisis firewall before the end of March, probably at an informal gathering in Copenhagen set for March 30/31.

Against the yen, the dollar fetched 81.76, not far off a nine-month peak of 81.86 set Friday. Traders said the weekly close above a major retracement level at 81.60-65 was positive. The next major hurdle is seen at the 100-week moving average around 82.20.

While the G3 currencies appeared to be playing the funding-currency musical chairs, commodity currencies remained well supported, albeit vulnerable to bouts of profit taking.

Suffering one such episode, the Australian dollar fell to $1.0737, but was still close to a seven-month peak of $1.0857 hit last week. The Canadian dollar was also just off a 5- month high.

The focus in Asia is the HSBC China Services PMI, which provides a snapshot of conditions in businesses from restaurants to banks in the world's second biggest economy. The data is due out at 0230 GMT.

In Europe, markets are awaiting the latest business survey on the euro zone's private sector economy.

(Additional reporting by Reuters FX analyst Krishna Kumar; Editing by Wayne Cole)