* Euro drops as EZ manufacturing activity slows, stocks fall * Swissie holds on to gains, seen advancing further * Cyclical currencies seen vulnerable to U.S. ISM data (Recasts, adds quote, details, changes dateline PVS TOKYO) By Anirban Nag LONDON, Sept 1 (Reuters) - The euro eased against the dollar on Thursday, taking a cue from lower stocks, and could slip further if fresh evidence emerges that manufacturing output in the United States shrank after euro zone data showed the sector contracting. The yen stayed under pressure on dollar buying by Japanese accounts, lifting the U.S. currency to around 77 yen and soothing jitters that another round of intervention by Tokyo authorities may be on the way. The Swiss franc was firm against the euro and the dollar , although gains were less spectacular than on Wednesday with investors wary of any intervention by the Swiss National Bank. The euro was down 0.6 percent at $1.4291, triggering stops on the break of $1.4350 on selling by some quasi-sovereign investors. It fell past its 100-day moving average, which comes in at $1.4364. and the 21-day moving average at $1.4350. It extended losses after data showed German manufacturing activity grew at its slowest pace in almost two years and European shares opened lower . The gloomy readings added to evidence that the global economy was slowing. The U.S. ISM manufacturing index is due later in the session and analysts expect a reading of 48.5 in August versus 50.9 in July. , indicating contraction. "There is a risk of a sub-50 reading in the U.S. ISM manufacturing index. If that happens cyclical and commodity linked currencies will underperform," said Audrey Childe-Freeman, EMEA head of currency strategy at JP Morgan Private Bank. "The global economy is clearly going through a marked slow-down in economic activity and the market is trying to assess whether this will be just a soft patch or whether we are heading towards a recession." SAFETY PLAYS Growing worries about a recession are likely drive more investors into the relative safety of currencies such as the Swiss franc and the yen. The euro fell 0.4 percent against the Swiss franc to 1.1539 francs , while the dollar was marginally lower on the day at 0.8057 francs. The franc made hefty gains on Wednesday after a top government official said Switzerland would have to live with a strong currency and there was little sign of action from the Swiss central bank. The SNB has flooded the market with francs, cut rates to near zero and intervened in the swap market to bring the franc down from record highs. "The SNB's sight deposit target of 200 billion francs has likely been reached by now and, given the silence from the SNB, investors might now try to test the SNB's resolve," said Chris Walker, currency strategist at UBS. The dollar hit a session high of 77.25 yen in the Asian session after a British fund, some U.S. accounts and several Tokyo banks followed a major Japanese bank in buying dollars. Traders said the large dollar purchases appeared to be a specific transaction unrelated to fundamentals or particular positions. "It could be some sort of unwinding after end-of-the-month transactions yesterday or inflows from pension funds," said a trader for a Japanese bank. The dollar last traded up 0.3 percent at 76.90 yen. The Aussie pared gains made after Australian retail sales and capital spending data beat market expectations, with the negative impact of a rate cut by the Brazilian central bank still playing out. The Aussie was flat at $1.0705, off a one-month peak of $1.0733. The Brazilian rate cut -- the first in two years -- was taken by some market players as a further sign of weakness in the global economy, prompting them to take profits on the recently outperforming New Zealand dollar. The kiwi fell 0.5 percent to $0.8490 . (Editing by Nigel Stephenson)

Source