* Euro falls 0.8 percent versus dollar to $1.3255 * EU meeting offered no clear steps to stem crisis * Limited ECB support pressures bond markets * S&P action eyed; Moody's comments sour sentiment By Neal Armstrong LONDON, Dec 12 (Reuters) - The euro fell on Monday and was likely to stay pressured as funding strains in the euro zone remained unresolved and peripheral bonds faced renewed pressure after EU efforts to tackle the debt crisis failed to reassure investors. European Union states barring Britain decided on Friday to set stricter budget rules for the single currency area and to provide up to 200 billion euros in bilateral loans to the International Monetary Fund in response to the turmoil. But uncertainty about the drawn-out process of implementing changes, no emphatic action on cash-starved European banks and a notable lack of commitment from the European Central Bank to step up purchases of highly indebted euro zone countries' bonds put the euro back under pressure. It fell around 0.8 percent on the day to $1.3255 on trading platform EBS after triggering stop-loss orders placed under Friday's low of $1.3280, as peripheral bond spreads over German benchmarks widened and equity markets fell. Traders reported option-related demand placed ahead of $1.3250 and further stop-losses lurking below there. The euro is now more than 6 percent below its October peak and 11 percent off its 2011 high of just under $1.50, struck in early May. "There is a deflated feeling for the euro this morning after the EU summit. People were looking for a greater response and more importantly the ECB refused to significantly step up their bond buying," said Beat Siegenthaler, currency strategist at UBS. "If euro zone bonds come back under pressure there isn't much of a backstop to support the markets," he added. The ECB was seen buying short-dated Italian bonds on Monday but it was not sufficient to convince markets that the central bank is about to significantly step up its purchases beyond its weekly commitment of around 20 billion euros. Traders were closely watching the bond yields of Spain and Italy as those countries look to raise an estimated 7 billion euros through bond sales this week. The euro was put under added strain late in the Asian session when rating agency Moody's said euro area sovereigns would remain under pressure in the absence of decisive initiatives, with the cohesion of the zone under continued threat. "We expect the euro to head lower as nothing material has come out of the ECB or the EU summit to change the short-term dynamics and the debt crisis is likely to intensify," said Lee Hardman, currency strategist at BTM-UFJ. Markets were also waiting for a response from Standard & Poor's which, right before Friday's EU summit, warned it may carry out a credit downgrade of euro zone countries en masse if they fail to move decisively to stem the debt crisis. SPECULATORS SHORT The euro remained tethered in the $1.3200-$1.3500 band it has moved in since late November while IMM data showed only a small reduction in the speculative short euro base, raising the potential for a short-covering corrective rally, analysts said. However, any rebound was most likely to provide better levels to sell the common currency, and on the downside traders said a test of the November low at $1.3210 and then the October trough of $1.3145 was likely. While bilateral loans to the IMF will beef up the lender's resources to help struggling states, the volume of the euro area's bailout fund was still seen as insufficient to safeguard its core economies from contagion from the crisis. Euro zone leaders agreed to cap the capacity of the region's permanent bailout fund and it was not granted a banking licence. Moreover, analysts said that even if bond yields stabilise, Europe is probably heading for a recession, with purchasing manager surveys to be released this week expected to point to contraction in the region's manufacturing and service sectors. With the euro on the defensive, the dollar index rose 0.7 percent to 79.219. The dollar was up slightly against the yen at 77.84 yen. Higher-yielding currencies such as the Australian dollar fell back with equity markets under pressure. The Aussie was down 1 percent on the day at $1.0100 with technical analysts seeing support at $1.0058, the 21-day moving average.

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