* Euro slips vs dollar, earlier climb loses momentum
* Dollar/yen nears pre-intervention levels, BoJ awaited
* Dollar falls to 2-1/2-year low against Swiss Franc (Updates prices, adds quote)
By Gertrude Chavez-Dreyfuss
NEW YORK, Oct 4 (Reuters) - The euro on Monday fell from its highest level versus the dollar in more than six months amid renewed concerns about the financial viability of euro zone banks, prompting investors to cut overly bullish bets on the euro.
Speculative trades against the dollar swelled to $22 billion in the week to Sept. 28, the highest since at least mid-2008, Commodity Futures Trading Commission data showed. Net euro longs, on the other hand, rose about seven-fold. For more see [IMM/FX].
The euro has gained more than 16 percent versus the greenback since it hit a more than four-year low in June. Analysts said positions appeared overstretched and are due for a correction.
"There are just too much short dollar positions building up so this is just consolidation and people taking profit on the euro's gain," said Kaz Shirai, FX trader at Union Bank in Los Angeles.
Also weighing on the euro, Shirai said, was a news item about the need for certain European banks to increase capital levels. A Swiss-government-commissioned panel said UBS AG and Credit Suisse Group AG must hold capital well in excess of new international standards under the rules announced last month by the Basel Committee on Banking Supervision. [ID:nZCH4LE62J]
In late afternoon trading, the euro <EUR=EBS was down 0.8 percent at $1.3684, retreating from a peak of $1.3809 on the EBS trading platform, its highest since mid-March. Stop-loss selling was triggered around $1.3675 on to the session low of $1.3666 while good-sized bids were lined up above $1.3650 and are likely to support the euro, traders said.
Overall though, Union Bank's Shirai said euro zone concerns are still overshadowed by the uncertainty arising from a widely expected second round of quantitative easing by the Federal Reserve. That should ensure the dollar's downtrend remains intact.
"The dollar is by no means oversold. There is a strong possibility of further declines because additional QE by the Fed has only partially been priced into the value of U.S. stocks, Treasuries and the dollar," said George Tchetvertakov, head of market research at Alpari Capital in London.
WORRIES ABOUT PERIPHERAL EURO ZONE COUNTRIES
Bad news from the euro zone including about Ireland and Greece also pressured the euro.
The Irish central bank said on Monday Ireland's economy will crawl to a virtual halt this year, defying government hopes for modest growth. [ID:nLDE69313N]
Greece released a draft budget on Monday which forecast the economy will contract 2.6 percent next year after a 4.0 percent slump in 2010, staying in recession for a third straight year. [ID:nATH005716]
The euro's decline helped push the dollar up against a currency basket. The dollar index .DXY rose 0.5 percent to 78.435, up from 78.029 on Friday, its weakest since January.
Against the yen, the dollar hovered near a 15-year low, fueling speculation Japan may reenter the market to weaken its currency. The dollar JPY= traded at 83.40 yen, up 0.3 percent, but retreating from 83.88 yen hit in the Asian session on EBS. Traders cited possible stop-loss orders under 83 yen.
The Bank of Japan on Monday began a two-day policy meeting and was expected to extend a cheap fund-supply tool to help shore up the struggling economy. [ID:nTOE69003G]
Market participants cited speculation any BOJ stimulus steps may be followed by more yen-selling intervention. Some analysts expect Japanese authorities to step in to sell yen if the dollar falls under 83 yen, as they did last month.
Against the Swiss franc CHF=,the dollar fell to its lowest in 2-1/2 years, falling to 0.9705 francs before recovering to 0.9722 francs, still down 0.1 percent.
This week sees the release of crucial U.S. jobs data while the central banks of Australia, the euro zone, Japan and the United Kingdom hold policy meetings. The International Monetary Fund and Group of Seven finance ministers also meet this week.
Ahead of these events investors are likely to trim short dollar positions even though many in the market expect more U.S. quantitative easing. (Additional reporting by Nick Olivari; Editing by James Dalgleish)