* Euro pauses after reaching 11-month high * Yen firm but weakness to persist on prospects of easing * Investors look ahead to Fed meeting, U.S. GDP, jobs data By Gertrude Chavez-Dreyfuss NEW YORK, Jan 28 (Reuters) - The dollar fell from 2-1/2-year peaks against the yen on Monday in subdued trading as investors locked in profits after the greenback's recent rally, although its uptrend is likely to hold given expectations of further monetary easing in Japan. The euro slid from an 11-month high against the dollar set on Friday, with traders reporting option barriers starting from $1.3480. But analysts said the common currency looked poised for further gains, which could lift it toward the psychologically important $1.35 level, the highest since December 2011. Selling the yen has been a one-way trade since mid-November as investors expected Japanese Prime Minister Shinzo Abe would push the Bank of Japan into more forceful monetary easing to beat deflation. Increasing rhetoric from Japanese authorities that they are open to the dollar rising to the 100 yen level has helped weaken the currency further, raising eyebrows abroad and sparking talk that Japan is triggering a currency war. In late afternoon trading, the dollar slipped 0.1 percent to 90.78 yen. It had earlier risen as high as 91.25 yen, hitting a 2-1/2-year high for a third consecutive session. "I expect there would be some consolidation around the current level until there is a better sense of the directional movement," said Al Manbeian, managing partner at corporate FX broker GPS Capital Markets in Salt Lake City. "But the trend is for continued yen weakness." He said the Japanese government may try to moderate its view on the weak yen given complaints by foreign politicians such as German Chancellor Angela Merkel. The dollar briefly recovered against the yen after data showed U.S. durable goods orders unexpectedly rose in December. But the momentum faded after data on U.S. pending home sales disappointed. The euro fell 0.2 percent to 122.10 yen, after climbing to a 21-month high of 122.89 yen on Reuters data. Against the dollar, the euro was down 0.1 percent at $1.3451, slipping from an 11-month high of $1.3479 set on Friday. The euro has advanced for six consecutive months versus the dollar for gains of more than 9 percent. Analysts said the outlook for the euro zone improved with the generally positive economic news out of the region, especially from Germany, the bloc's largest economy. The euro has also benefited from news about euro zone bank repayments to the European Central Bank, suggesting funding conditions have improved. "The euro has been in a powerful uptrend on the healing optimism for both Europe and the global economy," said Jack Crooks, president and founder of FX investment advisory firm Black Swan Capital in Palm City, Florida. Ahead of the $1.35 level, major resistance for the euro includes its 2012 high of $1.3486 and the 50 percent retracement from the high in May 2011 to the low in July 2012 at $1.3492, traders said. Data on Friday showed speculators had increased their net long euro positions, while bets for further weakness in the dollar hit the highest level since early October. In the options market, traders reported demand for euro calls, which are bets on more gains. The one-month risk reversals traded at 0.1 vols in favor of euro calls, having flipped from puts toward the end of last week. Not everyone shared that enthusiasm. "We are not getting euphoric on the euro," said Jens Nordvig, chief currency strategist at Nomura Securities in New York. "The growth trend is too weak to support a sustained rally, in our view. Sooner or later, the risk premium compression on the euro will have run its course." Traders are also awaiting the outcome of the Federal Reserve's monetary policy meeting this week, although most do not expect any change in the U.S. central bank's dovish stance. The Fed's policy statement will be issued at the close of its two-day meeting on Wednesday. The first estimate of fourth-quarter U.S. economic growth and January payrolls readings are also due this week. "The expectation is that this week's U.S. data will offer more evidence of a steady but slowly healing recovery," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
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