The euro fell against the dollar and the yen on Thursday as concerns about contagion from the euro zone debt crisis resurfaced, with investors wary on the common currency ahead of Spain's budget on Friday.

Traders said automatic stop-loss sell orders were triggered on the euro's break below $1.33 after the European Commission's economic sentiment index dipped by 0.1 percent, with sentiment in industry worsening markedly.

Despite decent demand at an auction of Italian five- and 10-year bonds, Italian and Spanish yields rose, dragging the euro to a session low of $1.3267.

Analysts said the euro was unlikely to break below its recent range of roughly between $1.30 and $1.35, with market players expecting a euro zone finance ministers' meeting to approve bolstering the region's rescue fund on Friday.

Given we are below $1.33 this is certainly a psychologically important mark which may be the beginning of a more sustained down move, said Caroline Hecht, currency strategist at Commerzbank.

If euro zone finance ministers decide the rescue package will be enlarged that will be calming for the market but we expect the risk premia on peripheral countries' yields to remain quite high.

Expectations over the size of the rescue fund have been tempered by European Central Bank governing council member and Bundesbank chief Jens Weidmann who warned that raising the firewall around stricken euro zone members would only buy time.

But the shared currency remained vulnerable to concerns of contagion spreading to the euro zone's larger economies, and a general strike in Spain and the Spanish budget on Friday fanned bearish sentiment.

If the Budget delivers any negative surprises or is not considered sufficiently tough enough to reign in Spain's budget deficit, then international investors could ditch Spain all together, said Kathleen Brooks, research director at FOREX.com.

YEN FIRMS BROADLY

The euro fell over 1 percent on the day to 109.00 yen, with the Japanese currency gaining broadly on demand linked to the end of Japan's financial year and as European equity markets followed Asian bourses into negative territory.

A second straight day of losses in Chinese stockmarkets and a below-forecast increase in new orders for U.S. durable goods on Wednesday knocked appetite for risk, and contributed to demand for the safe-haven and low-yielding yen.

The last day for spot trading in the business year to March 31 was on Wednesday but real-money flows from Tokyo kept major currencies under pressure against the yen, with exporters selling the dollar in large amounts, market players said.

The dollar was down 0.8 percent at 82.20 yen, triggering reported stop-loss orders on the break of 82.35/40. But many strategists said the dollar should reassert itself against the yen as long as upcoming U.S. data does not bear out a recent rise in concerns about growth.

There's definitely a lot of month-end and quarter-end rebalancing but the bigger story we are seeing is some bond buying and equity selling in the last 24 hours, said Geoff Kendrick, currency strategist at Nomura.

But assuming U.S. economic numbers next week are okay we could see U.S. yields back up to the top of their recent range and that could be very dollar/yen supportive.

In general, U.S. data prior to the durable goods numbers had been heading in the right direction, but those latest figures, allied to a warning from Federal Reserve chief Ben Bernanke, have prompted nerves over the strength of the U.S. recovery.

U.S. initial jobless claims and a final reading of final quarter 2011 GDP were scheduled for 1230 GMT on Thursday.

The dollar index .DXY reversed earlier losses to rise 0.15 percent to 79.236, above a four-week low of 78.77 hit Tuesday.