* Investors wary over capital needs for European banks * China trade data renews worries over global economy * ECB report cautions debt write-downs may damage euro * Slovakia approves euro zone bailout fund expansion By Richard Leong NEW YORK, Oct 13 (Reuters) - The euro declined on Thursday from one-month highs due to renewed worries about European banks and the global economy after disappointing trade data from China. The euro's retreat from its near one-month highs against the dollar and yen was compounded further by profit-taking on earlier gains this week and fading demand to cover short positions, analysts and traders said. "After such a strong rally this week based on nothing but hope, people realize that things are not going to come as easily as they had hoped," said Kathy Lien, director of currency research at GFT in New York. Those hopes were partly realized after the Slovak government ratified the expansion of the European Financial Stability Facility, which gives policy-makers a critical tool to contain the region's sovereign debt crisis. Slovakia was the last member of the 17-nation euro zone block to endorse changes to the 440-billion-euro bailout fund. After Thursday's pullback the euro is up roughly 3 percent against the U.S. dollar from its 8-1/2 month low set last week. It was last down 0.38 percent at $1.3732 after touching $1.3834 on the EBS trading platform. Even with a strengthened EFSF, European banks are still vulnerable to a Greek default and further sovereign downgrades. That increases the urgency for them to raise more capital to remain financially sound, analysts said. "Hopes have been replaced by fears when there are no concrete plans," Lien said. The European Central Bank warned that any sovereign debt write-offs that force losses could damage the euro's reputation. The bank made no specific reference to the current debate on increasing previously agreed plans for a 21 percent write-down for banks. European Union officials said on Thursday that weak banks may get up to six months to bolster their balance sheets after a rapid health check currently underway.The euro fell almost 1 percent to 105.47 yen, sagging from a nearly one-month high at 107.03 yen recorded on Wednesday. This weekend's meeting of the Group of 20 rich and emerging nations in Paris could result in more assurance for investors after German Chancellor Angela Merkel and French President Nicolas Sarkozy late last week said they would announce a plan to solve the euro zone debt crisis by the end of the month. Their statement prompted investors to pare back bets for more euro losses. Thursday's selling suggested investors are cautious about pushing the euro higher given the barriers policy-makers face to finding a lasting solution. The euro's losses highlighted wariness among investors to bet on more gains unless euro zone authorities unveil a convincing strategy to fight the debt crisis at a summit on Oct. 23. "These gains are unlikely pretty short-lived until we get more clarity from Europe," Shaun Osborne, chief FX strategist with TD Securities in Toronto said of euro's earlier gains. The euro and other risky assets are vulnerable if investors believe officials are doing too little to bolster European banks, which are expected suffer if they are forced to accept haircuts on their Greek debt holdings. Investor anxiety heightened after data showed China's trade surplus shrank for a second straight month in September, reflecting global economic weakness and slowing domestic demand."We see the global economy is slowing given what we saw with the Chinese trade numbers," TD's Osborne said. Selling in the euro and other currencies perceived to be higher risk boosted the dollar index 0.3 percent to 77.25, pushing it above initial technical resistance at 77.11, the index's 38.2 percent retracement of its May-October rally. Despite its gains versus the euro and other currencies, the greenback fell 0.52 percent to 76.87 yen as the Japanese currency gained across the board. The dollar hit a one-month high around 77.489 yen on EBS on Wednesday.

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