* Euro slides to day's low of $1.2775 on EBS * Italy debt sale fails to live up to Spanish success * Euro still in downtrend, not far from 16-month low By Neal Armstrong LONDON, Jan 13 (Reuters) - The euro fell to the day's low on Friday after an Italian debt sale could not reach the heights of a stellar Spanish auction the previous day, a reminder that Europe's debt crisis is unresolved and the currency's downtrend is entrenched. Italy sold 4.75 billion euros of government bonds, with demand for its three-year benchmark paper weaker than expected. The auction came a day after Spain sold twice the planned amount of bonds, supported by domestic banks awash with European Central Bank liquidity. The euro fell from around $1.2840 versus the dollar to the day's low of $1.2775 on trading platform EBS to trade down around 0.4 percent for the day. It had earlier risen to a one-week high of $1.2879 on short-covering. "After the Spanish auction people got a bit too excited and bulled up for Italy today. It was ok, but not anything like as dramatic as Spain," said Adrian Schmidt, currency strategist at Lloyds Banking Group. The euro remained within sight of Wednesday's 16-month low of $1.2661, with the subsequent bounce to seen as corrective rather than sustainable. "We're still in the downtrend and many people are short from well above $1.30 so they won't be cutting their positions yet," said Schmidt. Technical analysts said the outlook for the euro would remain negative while below the 21-day moving average around $1.2931. Hopes that Greece may soon reach a deal with private creditors for a voluntary debt exchange initially helped the euro, though uncertainty over the long-term future of Greece's finances kept the rally in check. A deal with private creditors to voluntarily write down at least half the value of their Greek sovereign bonds has a good chance of happening in the coming days, the chief executive of French bank Societe Generale told newspaper Les Echos. On Thursday private sectors bondholders warned time was running short to clinch a deal on a voluntary debt exchange, while euro zone sources said Athens might force reluctant investors to accept losses. "An agreement on the Greek debt swap is unlikely to be enough to bring Greece back to a sustainable path." said Manuel Oliveri, currency strategist at UBS in Zurich. Against the higher-yielding Australian dollar, the euro slipped back to A$1.2357, not far from a record low of A$1.2291 struck on Thursday. ECB The European Central Bank kept interest rates unchanged at 1.0 percent on Thursday and said its flood of cheap 3-year loans was helping banks, adding that the euro zone's economy was showing some signs of stabilisation in activity. Indeed, analysts said some of the near half a trillion euros of three-year funds injected by the ECB last month probably went into supporting this week's debt auctions. Still, the euro is likely to remain pressured by concerns about the outlook for the euro zone's economy, and a sharp rebound in the common currency seems unlikely. Investors are reluctant to enter into fresh long euro positions with so much uncertainty still surrounding the debt crisis and a precarious outlook for the euro zone economy which have been pulled the euro to multi-month lows versus the dollar and a decade low versus the yen. "I don't think the euro can go much higher from here as there's not much sustainable improvement in interest rates or inflation expectations. The euro zone is still not attracting any structural inflows," said Oliveri at UBS. The euro was down 0.3 percent at 98.11 yen, holding above this week's 11-year low of 97.28. The dollar was steady at 76.71 yen, while it rose slightly to 80.907 versus a currency basket, not far from a 16-month high of 81.493 hit Wednesday after a run of robust U.S. economic data boosted hopes for its economy and tempered expectations for more monetary easing. Focus in the U.S. shifts to bank earnings on Friday with JP Morgan set to post fourth-quarter results. (Editing by Toby Chopra)

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