By Wayne Cole
SYDNEY (Reuters) - The euro started the new year at 29-month lows in Asia on Friday after the head of the European Central Bank fanned expectations it would take bolder steps on stimulus this month, underlining the U.S. dollar's expanding yield advantage.
The single currency sank as far as $1.2050 <EUR/USD>, depths last seen in mid-2012, while the dollar notched up a near nine-year peak against a basket of major currencies (DXY) and bounded ahead to 120.45 yen <USD/JPY>.
The euro is now perilously close to its 2012 trough, and major chart support, at $1.2042. A break there would take it to territory not seen since June 2010.
The latest lurch lower came after ECB head Mario Draghi said the central bank stood ready to respond to the risk of deflation. Consumer price data for the euro zone due on Jan. 7 is widely expected to show a fall in annual terms.
"We are in technical preparations to adjust the size, speed and compositions of our measures early 2015, should it become necessary," said Draghi. "There is unanimity within the Governing Council on this."
The ECB council meets on Jan. 22 and markets are wagering heavily it will finally decide to start buying sovereign debt, following in the footstep of the U.S., UK and Japan.
Oil was also active on Friday as prices tried to rally on news of a larger-than-expected fall in U.S. crude inventory and a fire at a major U.S. supply facility.
Yet the mood was fragile after last year's savaging and sharp early gains were soon pared. U.S. crude futures
Stock markets in Asia were calmer with China, Japan, Thailand and the Philippines all on holiday. Australia's main index (AXJO) and South Korea's both added 0.5 percent (KS11) and Hong Kong (HSI) 0.8 percent.
MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) was little changed, having ended 2014 almost exactly where it began - a pattern it has repeated for three years straight.
Economic data from the region was generally subdued, with China on Thursday reporting its official Purchasing Managers' Index (PMI) slipped to 50.1 in December, the lowest level of 2014 and barely in expansion territory, from November's 50.3.
The blow from sputtering factory activity was softened by a rise in the service sector PMI to 54.1, a hopeful sign that services are taking over from manufacturing as a driver of economic growth.
In any case, investors are focused on the likelihood that Beijing will roll out more stimulus to avert a sharper slowdown which could trigger job losses and debt defaults.
That was one reason Chinese stocks outpaced the rest of the world to end 2014 with an increase of 52 percent (CSI300).
Wall Street also managed double-digit gains. While the S&P 500 (SPX) ended Wednesday with a loss of 1.03 percent it was still 11 percent higher for the year.
The Dow (DJI) eased 0.89 percent on Wednesday, while the Nasdaq (IXIC) dipped 0.87 percent.
On Friday, S&P 500 EMINI futures were showing a rise of 0.5 percent
Gold <XAU/USD> looked set to post its third straight weekly loss at $1,184.25 an ounce, weighed down by a strong dollar. It ended 2014 down about 2 percent.
(Editing by Kim Coghill)