* Greek draft budget forecasts bigger deficits than expected
* Euro hits 8-mth trough as macro funds sell; more downside seen
* 1-yr euro riskies loom near record highs
* Aussie at 10-mth low; leveraged and macro funds offload
* Dlr/yen may edge higher; macros spotted building longs
By Antoni Slodkowski
TOKYO, Oct 3 (Reuters) - The euro sank to an eight-month low on Monday on selling by macro funds and is poised to fall further after the Greek government said the debt-ridden country will miss a deficit target set just months ago in a massive bailout package.
Stocks, commodities and growth-linked Asian currencies ground lower, prompting both leveraged and macro funds to unwind their long positions in the risk-sensitive Australian dollar, sending it to a 10-month low at $0.9592 .
With Europe bitterly divided over the best cure for the spiralling debt crisis and with the possibility of a Greek default looming larger than ever, the euro was likely to keep falling in the coming days, players said.
"A Greek default is a sort of Pandora's box no one wants to open. While some markets seem to have priced in such a possibility, it looks like the euro still has some way to go should it happen," said Teppei Ino, a currency analyst at the Bank of Tokyo-Mitsubishi UFJ.
The euro dived 0.5 percent to $1.3320 from $1.3418 in New York on Friday. The single currency?lost 7 percent in September -- the largest monthly drop since November 2010.
If Greece defaults on its debt, Ino said he thought the euro could initially fall to $1.32 and would then quickly move towards $1.30.
Underscoring jitters over European financial institutions' exposure to Greece, reports emerged that ministers from France and Belgium would meet to shore up the balance sheet of troubled financial services group Dexia.
Making matters worse, Germany's finance minister ruled out a higher contribution to the euro zone's rescue fund beyond an already approved 211 billion euros ($283 billion), while a key German coalition member of parliament said "Greece is bankrupt".
But traders are afraid to short the euro too aggressively, as the market is euro short and any positive headline is likely to trigger a short-covering rally of 100 to 200 points.
"You definitely want to sell the euro into those rallies, especially if it nears $1.36. Personally, I would sell as low as around $1.3550," said a trader for a Japanese bank. Light topside stops are seen at $1.3430 with more ahead of $1.3550.
For now, technical support for the single European currency lies at January lows around $1.3250-80 and then in the $1.3250-00 zone, formed by trend channels, internal wave targets and Fibonacci projection objectives.
The options market points to a strong appetite for long-term euro/dollar puts. One-year risk reversal spreads continued to widen and hit a record high around 4.0 at the end of last week and still stand near that level.
"This suggests some structural need to hedge against over-exposure to the euro," an options trader in Tokyo said.
ECB member Christian Noyer also said it was unrealistic to expect an increase in Europe's bailout fund beyond what was agreed in July, but he was open to schemes that would allow leveraging to expand capacity.
Euro zone finance ministers meeting later are expected to put pressure on Greece to implement agreed structural reforms and to discuss options for leveraging the European Financial Stability Facility (EFSF), the currency bloc's bailout fund, to increase its financial firepower.
BUILDING LONGS
The dollar index hit an eight month high, gaining 0.7 percent to 79.092.
The greenback also was steady on the yen, after hitting a two-week high at 77.27 yen and breaking above its 55-day moving average at 77.17 for the first time since its spike after intervention on Aug. 4. Stop losses loom around 77.30 yen, while orders are seen around 77.50, yen traders said.
Although the dollar failed to maintain early gains above 77.17 yen, a close above that mark could improve sentiment towards the pair, especially as seasonal selling before end-September book-closings by Japanese exporters has run its course.
Tokyo dealers also reported macro funds building dollar-long positions and analysts said that if the current crisis deepened, this time the yen could weaken versus the dollar, unlike the global financial crisis in 2008.
"Contrary to what happened during the global financial crisis in 2008, this time the yen carry trade has not been as active," said Junya Tanase, chief strategist at JPMorgan Chase in Tokyo, adding that the dollar may strengthen to 78-79 yen over the next two weeks, although other yen crosses were likely to soften.
PMI numbers from China and export numbers from Korea suggest global demand has not eased as quickly as some investors had feared in recent weeks, but this failed to make much of an impact on financial markets.
The European manufacturing PMI will be released on Monday and another deterioration below the key 50 level could see the euro sink further. This is also a big week for U.S. data with ISM Manufacturing on Monday and non-farm payrolls on Friday. ($1 = 0.745 Euros) (Additional reporting by Cecile Lefort and Reuters FX analyst Krishna Kumar in Sydney, and Hideyuki Sano in Tokyo; Editing by Edmund Klamann)