* Markets off to wary start after Paris attacks
* Euro hits 6 1/2 month low on yen, 3-month trough vs sterling
* Yen shows no reaction to Japan Q3 GDP contraction
* Eyes on ECB, euro zone inflation data
By Hideyuki Sano and Ian Chua
TOKYO/SYDNEY, Nov 16 (Reuters) - The euro hit a 6 1/2-month low against the yen and edged near 6 1/2-month lows against the dollar in Asia on Monday after the deadly attacks in Paris added to caution on the common currency.
Even before the attacks, the euro had been under pressure from expectations the European Central Bank will step up monetary easing next month, possibly cutting interest rates deeper into negative levels.
The euro shed 0.5 percent to $1.0710, edging towards last week’s 6 1/2-month low of $1.0674, having retreated almost 7 percent from its Oct 15 peak of $1.1495.
The common currency also fell to as low as 130.645 yen , its lowest since late April. It last stood at 131.38 yen, down 0.5 percent from late New York levels last week.
Most forex trading had waned in New York by the time the attacks in Paris began on Friday evening.
“The attacks are negative for sentiment in Europe. At the moment it is not clear what impact they had on consumption and the economy. But when I talked to people in Europe, they say they will become more cautious in going out,” said Shunsuke Yamada, chief FX strategist at Bank of America Merrill Lynch in Tokyo.
“Geopolitical risk is heightened, with France already taking responses. That I think should have negative implication on the euro/yen,” he added.
France launched air strikes in Islamic State positions in Syria on Sunday as police in Europe widened their investigations into the coordinated Paris attacks.
Also against sterling, the common currency hit three-month low of 0.70245 pence.
“Currency markets have responded to the atrocities in Paris over the weekend,” said Richard Grace, chief currency strategist at Commonwealth Bank of Australia.
Broad risk sentiment was also weakening as oil and commodity prices fell while U.S. shares on Friday as well as futures early on Monday lost steam on disappointing earnings and soft domestic retail sales data.
That helped to push up the yen, which tends to be bought back on any bad economic news as it is often used as a funding currency because of its low interest rates.
The dollar slipped to as low as 122.23, its lowest in 10 days and last stood at 122.53 yen, compared to 122.62 yen at the end of last week.
The yen showed muted response to data that showed Japan’s GDP slipped more than expected in July-September, the second consecutive quarter of economic contraction.
The numbers were within market expectations and will not significantly change Japan’s policy outlook, said Minori Uchida, chief FX strategist at Bank of Tokyo-Mitsubishi UFJ.
The Australian dollar, often sold in times of market stress, softened just 0.1 percent to $0.7110, compared to around $0.7120 late in New York on Friday.
“Currencies are slightly weaker from their closing levels on Friday, which is the response you’d expect given that we expect investors to be relatively defensive in terms of risk sentiment early this week,” said Raiko Shareef, strategist at BNZ.
“It’s been a relatively modest reaction in currency markets, but in the direction that you would expect.”
Traders expect fundamentals to quickly reassert themselves.
Despite weak U.S. retail sales data on Friday, the Federal Reserve is still seen likely to hike interest rates next month, in contrast to the ECB, which is looking to inject more stimulus.
For clues on the ECB’s stance, traders looked to inflation data due out of the euro zone later in the day. ECB President Mario Draghi and Board member Vitor Constancio are scheduled to speak at separate events on Monday. (Additional reporting by David Gaffen in New York and Charlotte Greenfield in New Zealand; Editing by Ruth Pitchford and Richard Borsuk)