(Reuters) - The euro held its ground in very thin trade on Monday, staying above an 11-month low against the dollar as investors awaited an Italian debt auction later in the week.

With markets in London and New York closed for holidays, major currency pairs did not stray far from recent ranges as they entered the final trading week of 2011.

Against the greenback, the euro edged up to $1.3069, comfortably above an 11-month trough of $1.2945 hit this month.

Market participants said stop-loss orders around $1.3120 could push the euro higher in a thin market if triggered, while a break below $1.2945 could pave the way for a test of its 2011 low of $1.2860.

A day like today can be risky, because thin conditions can amplify moves, said Kimihiko Tomita, head of foreign exchange for State Street Global Markets in Tokyo.

The euro could get a lift from short-covering as the year wanes. Even though latest weekly IMM data showed long bets in favour of the U.S. dollar rose to $17.6 billion, short euro positions slipped only slightly to 113,697 contracts.

The market is also keen to see if the European Central Bank's tender last week improved credit conditions and eased the funding strain for struggling euro zone countries.

Italy will sell 3- and 10-year bonds on Thursday, and a successful auction would give the euro some support.

Italian bond yields rose across the curve on Friday, with the 10-year yield rising 8 basis points, breaking above the 7 percent level to 7.01 percent.

The euro also managed to stay above a record low against the Australian dollar, and last stood at A$1.2855, having sunk as deep as A$1.2832 on Friday.

The Aussie was up 0.1 percent at $1.0161, and the dollar index .DXY edged down about 0.1 percent to 79.86, off an 11-month peak of 80.73 hit this month.

Against its Japanese counterpart, the dollar remained mired at 77.99 yen. The pair has stuck to a narrow 2-yen band since Japanese financial authorities intervened in currency markets on October 31 to quell the yen's surge.

Expectations of near-term range-trading were evident in the options market, where one-month at-the-money implied volatility on dollar/yen options was at 7.6, significantly below comparable one-year volatility at 11.6.

The steepening volatility curve suggests investors expect greater activity in foreign exchange markets late next year, but that the shorter-term outlook is that rangebound moves will continue.