(Reuters) - The euro held steady on Thursday, but still hovered near an 11-month low hit the previous day as signs the European debt crisis was far from over prompted investors to sell risky assets and bolstered demand for the dollar.

The euro was little changed at $1.2986 after having fallen to as low as $1.2945 on Wednesday, the lowest level since January 11, on trading platform EBS. The next major support is found at the year's low, $1.2860 on January 10.

The euro inched up 0.1 percent against the yen to 101.38 yen. On Wednesday, the euro had dipped to as low as 101.10 yen, nearing a 10-year low of 100.77 yen hit in October.

The single currency has come under pressure this week after last Friday's European Union summit, seen as critical to reach a solution to rein in the debt crisis, failed to restore investor confidence.

The euro's weakness, plus falls in commodities such as gold and persistent strains in dollar funding markets, have bolstered the U.S. dollar this week and has helped lift the dollar index close to its 2011 high.

With the European Central Bank sounding reluctant about stepping up its bond-buying program, any bounce in the euro is likely to be limited in the near-term, said Rob Ryan, FX strategist at BNP Paribas in Singapore.

We need something to get us through the next six to 12 months, Ryan said.

The euro area faces the next potential crunch point in mid-January when Italy has to start issuing tens of billions of euros in bonds towards a 2012 total of 340 billion euros needed to roll over maturing debt.

Italy managed to find enough buyers for its debt auctions on Wednesday, but investors focused on the high yields Rome was forced to pay -- a level seen as unsustainable. At auction, the 6.47 percent yield on Italy's five-year bond was the highest since the euro was launched in 1999.

In Ryan's view, the question is who will buy euro zone sovereign debt at a time when financial institutions are deleveraging and trimming their assets.

It means somebody has to step in to buy those bonds. If the ECB is not going to do it, it all looks pretty ugly for not just the euro, but for everything else as well, Ryan said.

ECB policymaker Jens Weidmann delivered a blow to hopes of more decisive ECB intervention to quell the euro zone crisis, saying this week that his peers at the bank were growing skeptical of its bond-buy program, which he openly opposes.

Going into the end of December, the euro may bounce to around $1.32 if more details emerge about countries making contributions to the International Monetary Fund to help contain the euro zone's debt crisis, said BNP Paribas' Ryan.

But still I think there's a lot of people lining up to sell (the euro), he said.

The Australian dollar received a tiny fillip immediately after the HSBC flash China PMI came in at 49, an improvement from the 47.7 final reading in November.

But that move was short-lived, and the Australian dollar later came back under pressure. It was last down 0.4 percent at $0.9870.


The dollar index last stood at 80.565 .DXY, having hit an 11-month high of 80.73 on Wednesday and nearing the 2011 peak of 81.313.

The dollar index has risen above resistance at the top of the weekly Ichimoku cloud this week, possibly setting itself up for more gains. The Ichimoku chart is a technical analysis tool that is popular among traders.

It does look like the dollar index has achieved an upside break so I think it makes sense to follow this trend for now, said a trader for a Japanese bank in Singapore.

The Swiss franc dipped to a 10-month low of 0.9549 to the dollar on Thursday, ahead of a central bank policy meeting later in the day.

The Swiss National Bank is expected to stay on hold this week, but analysts suspect it is only a matter of time before it shifts the cap on its currency [ID:nL6E7NC2A0].

The dollar held steady against the yen at 78.08 yen, having pulled away from last week's low near 77.13 yen over the past few days.

Traders said the dollar was supported against the yen on Thursday due to dollar buying by Japanese importers.