* EUR/USD falls 1 pct on day after ECB Weber comments
* Weber: Unlimited bank lending should extend past end-2010
* Dollar holds above 85 yen, investors wary of intervention
(Releads, updates throughout)
By Naomi Tajitsu
LONDON, Aug 20 (Reuters) - The euro fell to its lowest against the dollar in more than a month on Friday after comments by a European Central Bank official bolstered the view that euro zone monetary policy would remain loose for months to come.
ECB Governing Council member Axel Weber told Bloomberg news agency that it would be "wise" to extend unlimited liquidity to banks past the end of 2010 and resume discussions to exit loose monetary conditions next year. [ID:nWEA4983]
The comments came after St. Louis Federal Reserve President James Bullard on Thursday said the U.S. central bank may need to ramp up purchases of U.S. Treasuries if price levels in the U.S. economy continue to shows signs of softening. [ID:nN19263721]
Analysts said that dovish comments from central banks were adding to an increasingly sombre economic outlook, which would keep risk aversion high.
"The comments will lead the market to believe that policymakers are expecting further economic weakness," said Raghav Subbarao, currency analyst at Barclays Capital.
"Although a move towards active easing requires more bad data, slowing growth will postpone any policy tightening."
He added that this view would continue to make investors reluctant to take on significant positions in risky assets, and may push the euro lower. The safe-haven dollar often appreciates during times of risk aversion.
Weakness in the U.S. economy was highlighted by data on Thursday showing a rise in new U.S. jobless claims while a mid-Atlantic manufacturing index fell this month for the first time in more than a year. [ID:nN19350083]
By 1028 GMT, the euro EUR= had fallen 1 percent on the day to $1.2686 according to Reuters data, its lowest since mid-July.
Some market participants cited euro selling by central banks as pushing the single currency lower, while stop-loss orders were triggered just below $1.2730.
Technical analysts said the market was focusing on the $1.2646 region, around the 23.6 percent Fibonacci retracement of the euro's slide in November 2009-June 2010.
Losses in the euro helped pushed the dollar .DXY up 0.7 percent against a currency basket to a one-month high of 83.161
DOLLAR HOLDS ABOVE 85 YEN
The dollar rose 0.4 percent versus the Swiss franc CHF= to 1.0355 francs, but it hovered near a seven-month low of 1.0254 hit on Thursday. The safe-haven franc has gained broadly in the past week or so, indicating investors remain risk averse.
The dollar's broad gains failed to boost it against the yen. It was unchanged at 85.40 yen JPY=, hovering in range of 84.72 yen hit last week for the first time since 1995.
The U.S. currency has taken a hit versus the yen in past weeks as U.S. Treasury yields have tumbled due to concerns about the U.S. economy, narrowing their spread with Japanese government bonds and tarnishing their appeal.
Dollar/yen movements were at a standstill, with investors wary of extending the yen's recent gains before an expected meeting between Japan's prime minister and central bank governor. [ID:nTKB007001]
Some in the market suspect they may discuss ways to prevent the yen from climbing further. Japan's finance minister on Friday said he was communicating with other Group of Seven nations on currencies. [ID:nTOE67I097]
"Everyone thinks the dollar will extend losses against the yen," said Tsutomu Soma, senior manager of the foreign securities department at Okasan Securities in Tokyo.
"But fears of intervention and caution about additional monetary easing steps in Japan are making players hesitate to aggressively sell the dollar for now."
The high-yielding Australian dollar AUD=D4 fell nearly 1.0 percent to a one-month low of $0.8846. Australia holds a general election on Saturday, and polls showed the ruling Labor Party was neck-and-neck with the conservative opposition. (Additional reporting by Tokyo Forex Team; Editing by Susan Fenton)