* Euro pulls back from 2-month high vs dollar
* Euro hit by profit taking, concerns about stress tests
* Market awaits U.S. Q2 earnings beginning this week
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By Neal Armstrong
LONDON, July 12 (Reuters) - The euro fell against the dollar on Monday, pulling back from a two-month high as concerns about the results of stress tests on European banks prompted investors to trim long positions in the single currency.
The yen pared losses against the dollar which followed Japanese election results showing political uncertainty ahead. [ID:nTOE66A02V]
Market participants awaited second-quarter earnings results from U.S. firms, which kick off with Alcoa later on Monday. A weak run of economic data has raised speculation the economic recovery may be losing momentum and stung the dollar.
Many investors expect a solid earnings season.
Investors were also waiting for more details of stress tests on 91 European banks -- the results of which are due on July 23 -- as the European Union seeks to restore confidence in the sector. [ID:nLDE66B06L]
"European markets cannot escape fears that next Friday's publication of the results of bank stress tests could bring negative results," said Jane Foley, research director at Forex.com.
By 1115 GMT, the euro EUR= had fallen 0.6 percent on the day to $1.2570, easing from $1.2723 hit on Friday. Traders reported Asian demand around the day's lows at $1.2550 with stops lurking below, ahead of stronger bids placed on the approach to $1.2500.
Option expiries at $1.2600 were set to roll off at the 1400 GMT cut.
Some in the market said the euro had been knocked by a weekend German magazine report that stress tests would include a haircut on German sovereign debt under certain conditions, countering reports last week that the tests would exempt German haircuts. [ID:nLDE66A061]
Analysts said the efficacy of the stress tests would depend on how much detail they include, and the possibility the results may be thin on in-depth information was weighing on the euro.
The single currency was also under selling pressure after its failure late last week to rise above a downtrend line drawn through the euro's high hit in December and an April peak, and resistance was seen just above $1.2700.
The dollar index .DXY, which tracks its performance versus a basket of other currencies, rose 0.5 percent, recovering from a slide to 83.622 on Friday, its weakest since May 10.
The latest figures on IMM speculative positions show a significant trimming in net long dollar positions last week, which some analysts say may open the door to a dollar recovery as investors start to rebuild long positions. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For a graphic on CFTC futures positioning, click on
The dollar was back to flat at 88.57 yen JPY=, having climbed as high as around 89.15 yen in Asian trade.
The yen initially suffered after Japan's ruling coalition, led by Prime Minister Naoto Kan's Democratic Party of Japan, lost its upper house majority in an election on Sunday, putting at risk efforts to deal with the country's debt. [ID:nTOE66A02V]
Tokyo traders said the election outcome triggered unwinding in long yen positions, which rose significantly last week.
U.S. earnings, in addition to data on inflation, retail sales and manufacturing, will be the highlight of the week given growing speculation the U.S. economy may be stumbling.
(Graphic by Scott Barber, additional reporting by Naomi Tajitsu, editing by Nigel Stephenson)