MARKETS-FOREX (UPDATE 4)
* Euro falls 0.8 percent vs dlr, down 1 percent vs yen
* Fading expectations over EFSF talks dent sentiment
* ECB's Orphanides plays down talk of tighter policy
(Changes lead, adds quote, detail)
By Neal Armstrong LONDON, Jan 17 (Reuters) - The euro fell broadly on Monday as hopes for an increase in the euro zone's bailout fund faded and as investors reassessed a recent rise in European Central Bank interest rate expectations.
Uncertainty about whether Germany would support an increase in the lending capacity of the rescue fund, known as the European Financial Stability Facility (EFSF), clouded sentiment.
Europe set up the safety net fund, which can borrow on the markets with euro zone government guarantees of up to 440 billion euros, in response the debt crisis that forced Greece and Ireland to take bailouts last year. But a new package of anti-crisis measures is seen as unlikely to come any time soon.
Attention on Monday was focused on a meeting of euro zone finance ministers, at which an increase in the effective lending capacity of the rescue fund is expected to dominate discussion.
Senior European sources told Reuters the sense of urgency in Berlin for boosting the fund had diminished after successful bond auctions last week in Spain and Portugal, the two countries seen most at risk of needing any further bailouts.
Instead Germany is pushing for broader anti-crisis measures to be agreed at a summit of European Union leaders in March.
"It's becoming increasingly apparent that Germany doesn't want an increase in the rescue fund and that's weighing on euro sentiment today because there were positive expectations building last week," said Manuel Oliveri, currency strategist at UBS in Zurich.
"We believe the euro is a sell on rallies because investors are not minded to buy euro-denominated assets while structural problems in the euro zone persist," he added.
The euro traded at $1.3270, down about 0.8 percent on the day after falling as low as $1.3243 on trading platform EBS.
It was off a one-month high of $1.3458 hit on Friday when speculators went long after solid debt auctions from Spain and Portugal, hawkish comments on inflation from European Central Bank President Jean-Claude Trichet and hopes that euro zone policymakers may expand their rescue funds.
ECB policymaker Athanasios Orphanides played down rate hike expectations, saying last Thursday's statement was not overly hawkish and that there was sometimes an overreaction to the underyling message.
"Expectations for tighter ECB monetary policy measures aren't going to go away. But higher rates and a cobbled together rescue package for the euro zone aren't positive for the euro in the long run," said Ian Stannard, senior currency strategist at BNP Paribas.
Spain cancelled a proposed bond auction slated for later in the week on Monday, opting for a syndicated bond issue instead, which rattled investor confidence and gave another reason to sell the euro as peripheral bond spreads widened over German benchmarks.
It fell 1 percent on the day to 109.76 yen, down from Friday's one-month high of 110.99 yen. Versus the Swiss franc it was down 0.6 percent and against the pound the euro shed 0.9 percent.
The dollar was fetching 82.66 yen, down 0.3 percent on the day from late U.S. trade on Friday and within its well-worn range in the past weeks.
The greenback was up around 0.3 percent versus a currency basket, while traders said a U.S. public holiday on Monday would reduce liquidity into the European afternoon. (Editing by Catherine Evans)
