* Yen falls on talk of new dovish BOJ chief
* Euro upside seen capped by Italy elections
* UK rating downgrade pushes sterling to multi-month lows
By Nia Williams
LONDON, Feb 25 (Reuters) - The yen hit a 33-month low against the dollar on Monday on signs the Japanese government is name two strong supporters of aggressive monetary easing to top posts at the central bank.
Solid demand at an Italian bond auction helped the euro rise broadly, although strategists warned the single currency remained vulnerable to uncertainty about the outcome of an election in Italy.
Sterling, meanwhile, slumped to multi-month lows against the dollar and the euro after the UK lost its prized triple-A credit rating on Friday.
Sources said Tokyo is set to nominate Haruhiko Kuroda, a vocal advocate of aggressive monetary expansion, as Bank of Japan governor and Kikuo Iwata, an academic who has criticised the central bank for not taking bold measures to fight deflation, as one of two deputy governors.
"Dollar/yen has moved on the back of talk that Kuroda is going to head up the BOJ and he is going to be inclined to crank up the printing presses," said Neil Mellor, currency strategist at Bank of New York Mellon.
The dollar shot up to 94.77 yen on Monday, reaching highs not seen since May 2010. Option barriers at around 95 yen capped the dollar's gains and the U.S. currency was last trading at 93.85 yen, up 0.5 percent on the day.
Some analysts said the yen would remain on a weakening trend, although the dollar would face resistance at the psychologically important level of 95 yen.
"Both those candidates are in favour of more aggressive BOJ easing and that is weighing upon the yen," said Lee Hardman, currency economist at Bank of Tokyo Mitsubishi.
The euro was up 1 percent at 124.44 yen, having earlier risen as high as 125.36 yen. It held below the 34-month peak of 127.71 set earlier this month.
The single currency rose 1.2 percent against sterling, which lost ground against major currencies after Moody's cut Britain's rating by one notch to Aa1 from Aaa, citing weak prospects for economic growth.
Sterling slumped to a 16-month low versus the euro of 87.75 pence per euro and 31-month low against the dollar of $1.5073.
It looked likely to remain vulnerable on expectations the Bank of England could expand its quantitative easing further to bolster the fragile UK economy.
Against the dollar, the euro rose 0.6 percent on the day to $1.3269, helped by the demand at an Italian debt auction and gains in European shares.
It pulled away from a six-week low of $1.31445 hit on Friday, and market players said some investors who had previously bet against the euro were taking profit by closing those short positions.
The single currency remained vulnerable to the election results however, as a shaky coalition government could lead to fresh instability and stalled reforms in the euro zone's third-largest economy.ID:nL6N0BO0DN]
The dollar index dipped 0.3 percent to 81.205 as the euro climbed, having earlier hit 81.642, its highest level since early September.