* Ongoing turmoil causes 5-wk lows vs dollar and yen * Fitch warning on U.S. banks adds to contagion fears * Support for euro in $1.3405/10 area * Aussie bounces back as Asian shares show resilience By Masayuki Kitano SINGAPORE, Nov 17 (Reuters) - The euro trimmed its losses after hitting five-week lows versus both the dollar and the yen on Thursday as bond market turmoil spread across Europe, but market players were still bracing for further weakness in coming weeks. Investors were also nervously watching to see how German financial markets will react after rating agency Moody's Investors Service cut ratings of 12 German public-sector banks, believing they are likely to receive less federal government support if needed. The euro dipped to as low as $1.3421 on trading platform EBS at one point, its lowest since Oct. 10. It later trimmed its losses to change hands at $1.3505, up 0.3 percent from late U.S. trade on Wednesday. Support lies at around $1.3405, the 76.4 percent retracement of the October rally. The bottom of the weekly Ichimoku cloud also offers support near that level, coming in at $1.3408. Traders said the euro pared its losses as Asian shares showed resilience, with South Korean equities pushing higher, helping ease the currency market's risk-off sentiment. While the euro will remain sensitive to headlines and could see some short-covering rallies, it will probably decline further in coming weeks and months, said Chris Gothard, head of FX for Brown Brothers Harriman in Hong Kong. "There are signs of more widespread contagion in the eurozone outside of Italy and Spain with spreads widening this week in Austria, France and Belgium," Gothard said. "We think there are further downside risks from here with a convincing downside break of $1.3400 opening up the door to test the recent lows near $1.3150," he said, adding that his bank's forecast is for the euro to drop to $1.29 by year-end. Against the yen, the euro touched a five-week low of 103.40 yen at one point, but later pared its losses to stand at 103.97 yen, up 0.2 percent on the day. Yunosuke Ikeda, senior currency analyst at Nomura in Tokyo, said the euro could take a hit if there is a margin hike on Spanish bonds, which could take place soon after bond clearing house LCH Clearnet raised margin requirements on Italian debt last week, a move that sparked a selloff in Italian debt. Later on Thursday, the euro is likely to take its cues from auctions of up to 11 billion euros of Spanish and French bonds. Spain's sale of new 10-year debt comes as the country's finances are under renewed scrutiny just days before a general election and Madrid is expected to face its highest borrowing cost since the euro's inception in 1999. One factor that may temper the euro's decline is wariness among some investors about taking bearish bets against the currency in the wake of its recent swings, said Adarsh Sinha, Asia-Pacific G10 FX strategist at Bank of America Merrill Lynch in Hong Kong. For example, market sentiment toward the euro had turned very negative in late September. But the single currency ended up rebounding after hitting a trough of $1.3145 in early October, climbing above $1.4 in late October. "Even though they (investors) might have the underlying view that Europe is in trouble, expressing that in the FX market at least, has been a very painful trade," Sinha said. AUSSIE SEEN UNDER PRESSURE In a blow to risk appetite, Fitch warned it may downgrade its "stable" outlook for U.S. banks, because of contagion from problems in troubled European markets. The Australian dollar hit a five-week low of $1.0021 at one point, but later pared its losses to stand at $1.0104, up 0.2 percent on the day. "The AUD/USD remains under downward pressure and could try to push under parity to a support pivot point of $0.9986 in the near term," said Besa Deda, chief economist at St. George Bank. French borrowing costs continued to rise on Wednesday and European Central Bank buying of Italian and Spanish debt failed to reassure markets. There were also growing signs of strain in money markets, with euro zone banks finding it harder to obtain dollar funding. However, Germany remained resolutely opposed to letting the central bank take a bigger role in resolving the debt crisis, even though many analysts believe the only way to stem the contagion is for the ECB to carry out the sort of quantitative easing undertaken by the U.S. and British central banks. Among the G3 currencies, dollar/yen remained a sea of calm as the danger of more intervention by Japan kept markets wary. Dollar dipped 0.1 percent to 76.98 yen, having settled into a range roughly between 76.80 yen to 77.50 yen this week. Japan conducted massive yen-selling intervention on Oct. 31 in a bid to curb the yen's strength, after the dollar fell to a post-World War Two record low near 75.31 yen. ((masayuki.kitano@thomsonreuters.com +65-6417-4682)(RM:masayuki.kitano.thomsonreuters.com@reuters.net )

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