(Reuters) - The euro held above an 11-month low against the dollar in Asia on Wednesday, with thin year-end trade set to keep the common currency subdued ahead of an Italian bond sale later in the week. Traders expect the embattled currency -- now 12 percent below its peak hit in early May -- to be mostly range-bound though there was room for it to come under pressure after Italy's 8.5 billion euro bond sale and German CPI on Thursday. "The Italian auctions will be carefully watched especially with Italian 10-year yields nearing 7 percent; it will be another test of the market's appetite for what will be a feast of sovereign issuance in 2012," analysts at BNP Paribas said. In the euro zone some 230 billion euros of bank bonds, up to 300 billion euros in government bonds, and more than 200 billion euros in collateralized debt are all maturing in the first quarter of the next year. The 7 percent level is roughly the threshold beyond which other euro zone governments had been forced to seek bailouts and markets tend to get increasingly nervous if yields stay above this level for a prolonged period. The euro fetched $1.3063 on Wednesday, little changed from late New York levels, but not far off its December 14 low of $1.2945. Immediate support was seen around $1.3050, a trendline drawn from the December 14 trough. Last Friday, European Central Bank board member Lorenzo Bini Smaghi said the ECB should launch a U.S.-style asset purchase program if economic conditions change, opening the door to a possible policy shift to combat deflation. "We expect German CPI to come in weaker than consensus, which may weigh on the euro in light of departing ECB executive board member Bini Smaghi's comments," the BNP Paribas analysts added. U.S. CRITICISM With trade in the euro quiet, the dollar index .DXY was also calm at 79.830, not far off an 11-month peak of 80.730 set on December 14, and well above its support at the top of the weekly Ichimoku cloud at 78.627. Against the yen, the greenback stood at 77.80, remaining in a well-trodden range roughly between 77.00 and 78.20 seen so far this month. The U.S. Treasury, in a semi-annual report on Tuesday, criticized Tokyo for its solo yen-selling interventions in August and October that followed joint G7 action in the aftermath of the March 11 earthquake. But a Japanese government official said Japan would not change its stance of taking appropriate action in the foreign exchange market as needed. "We have communicated with authorities in other countries and we will continue to talk to them regularly," the official said. Japan has intervened in foreign exchange markets at least three times this year, spending a record sum to battle the yen's surge as other currencies slipped on euro zone debt woes and a sputtering global economy. Rob Ryan, strategist at BNP Paribas in Singapore said the impact of the U.S. Treasury report would be limited given uncertainty about the Japanese economy's outlook and current dollar/yen and cross/yen levels. "I think if they (Japanese authorities) feel they have to intervene, they will intervene," Ryan says, adding that a dollar drop down to the "low 76s" might be enough to prompt further action from Japan. (Additional reporting by Reuters FX analyst Krishna Kumar and Masayuki Kitano in Singapore; Editing by Edwina Gibbs)

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