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TOKYO, Dec 5 (Reuters) - The euro dropped in early Asian trade on Monday after exit polls showed Italian Prime Minister Matteo Renzi suffered a heavy defeat in a referendum over his plan to reform the constitution.
The euro dropped 0.6 percent to $1.0585, edging closer to its 1 1/2-year low of $1.0518 touched late last month. Against the yen, the common currency fell more than 1.0 percent to 119.70 yen.
Italian Prime Minister Matteo Renzi has staked his political future on the referendum, and many market players expect him to step down. Renzi will address the nation at around midnight (2300 GMT), government sources said.
Political instability could undermine Italy's fragile banking system especially when Monte dei Paschi di Siena , the country's ailing third biggest lender, needs to raise 5 billion euros by year end to avert the risk of being wound down.
The yen also strengthened about 0.3 percent against the dollar to 113.61 per dollar, bouncing back further from 9-1/2-month low of 114.83 touched last week.
The dollar softened on Friday as investors took profits from its recent gains following solid, but not spectacular, U.S. non-farm payrolls data. (Editing by Chris Reese)