RTRS:FOREX-Euro suffers after weak PMI, risk more selling
* Euro drops as EZ manufacturing activity slows
* Swissie extends rally as investors test SNB resolve
* Cyclical currencies seen vulnerable to U.S. ISM data (Adds details on Spanish auction, updates prices)
By Naomi Tajitsu and Anirban Nag
LONDON, Sept 1 (Reuters) - The euro fell broadly on Thursday, hammered by a fall in manufacturing across the euro zone and at risk of more losses if U.S. figures later in the day offer a similar picture.
Weak readings from the purchasing managers surveys highlighted economic weakness, boosting the Swiss franc against the euro and the dollar as investors looked to test the resolve of the Swiss National Bank to stem the safe haven currency's strength.
The euro fell around 0.8 percent on the day to a session low around $1.4260.
Ahead of U.S. ISM manufacturing PMI at 1400 GMT and key jobs data on Friday, the single currency is seen as having the most to lose from signs of weakness both in the European and global economy, given that the region remains far from a solution to its debt crisis.
Data showing contractions in the manufacturing sectors of most euro zone countries was the driver of broad euro selling, analysts said. This weakness extended to Germany, the euro zone's biggest economy, where manufacturing barely expanded in August and weakened from July.
Confidence about the euro zone's stability has been shaken by signs that officials are dragging their feet on steps to ease debt problems in Greece and other countries, creating tensions in funding markets and raised worries about the health of financial institutions in the region.
"Concerns about Greece's debt burden in general is the main factor weighing on the euro, and complicating that today has been the euro zone economic data flow," said Stephen Gallo, head of markets analysis at Schneider FX.
Not helping the euro's cause was sluggish demand at a Spanish bond auction, days after a weak response to an Italian sale, highlighting increased investor wariness about two of the euro zone's biggest countries. .
The euro broke below technical support in the $1.4320-1.4365 range, where many of the single currency's moving averages were clustered.
It sank below trendline support at $1.4280 -- drawn from lows hit in July and August -- and a slight recovery from the day's low was capped by offers from a U.S. investment bank around that level.
The franc rallied across the board , up roughly 1.5 percent lower to 1.1377 francs.
The euro's tumble from a session high around 1.1615 gained traction after stop-loss sell orders were triggered below 1.1500 francs and 1.1450, with traders citing selling by Swiss names and macro funds.
Broad franc strength pushed the dollar 1 percent lower to 0.7958 francs, just above bids seen at 0.7950 francs.
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.
WEAK ISM EXPECTED
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 a contraction of the sector.
"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."
Such concerns are driving more investors into the perceived relative safety of currencies such as the Swiss franc and the yen.
The franc extended gains following a rally 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 been quiet since mid-August, when it flooded the market with francs, cut rates to near zero and intervened in the swap market to bring the franc down from record highs.
Traders cited chatter that the SNB was checking rates in the Swiss franc forward market, although it was not seen actively intervening to drive down forward rates. Analysts said some traders considered its absence in the forwards market as a green light to push the franc higher.
"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.
