* Euro gains from Friday surge vs USD cut back * US manufacturing report increases risk aversion in NY session * Market players start to question EU summit deal NEW YORK, July 2 (Reuters) - The euro fell against the U.S. dollar o n M onday while the greenback fell versus the yen as risk aversion increased after data showing U.S. manufacturing contracted in June for the first time since July 2009. The data was another sign the U.S. economic recovery is slowing. "Global markets reacted more strongly than expected to this tertiary release, suggesting sensitivity to downside U.S. economic surprises," Michael Woolfolk, senior currency strategist at BNY Mellon in New York, wrote to clients. Uncertainty over the outlook for a deal to stabilize euro zone debt markets also troubled investors. Finland and the Netherlands opposed the use of the euro zone's permanent bailout fund to buy government bonds in the secondary markets. The stance of the two countries countered positive sentiment from last week's summit deal in which European leaders decided that rescue funds would be available to stabilize bond markets. The dollar dropped 0.31 percent against the yen to 79.52 yen after falling as low as 79.29 yen after the U.S. data. The euro traded at $1.2581, down 0.61 percent, after falling as low as $1.2567 after the U.S. data. Finland and the Netherlands opposed the rescue fund's bond buying in secondary markets, casting doubt on prospects for the plan and hurting the euro. Brad Bechtel, managing director at Faros Trading in Stamford, Connecticut, warned that the negative news headlines out of Europe are likely to persist, keeping uncertainty levels high and markets jittery. This kind of situation "as always, will make things even worse," he said. Europe will remain in the spotlight with the European Central Bank expected to ease policy at a meeting this week. ECB AHEAD The ECB is expected to cut its main refinancing rate by 25 basis points to 0.75 percent on Thursday, with expectations that the deposit rate it pays banks to park cash overnight may also be cut, to zero. Some players are hoping the ECB will also announce fresh stimulus measures to shore up the faltering euro zone economy. The market will be disappointed if the ECB fails to deliver on those expectations, analysts said. U.S. markets will be closed on Wednesday for the U.S. Independence Day holiday, which may also lower liquidity the day before the ECB meeting. "The juxtaposition of a holiday-broken week in the U.S. with the amount of economic information we are going to receive this week is making risk-taking extremely dangerous," said Bechtel. EUPHORIA FADES Monday's trading was in sharp contrast to Friday, when the euro surged around 1.8 percent against the dollar after leaders agreed to let Europe's rescue fund inject aid directly into stricken banks from next year and intervene on bond markets to support troubled member states. But details were sketchy and questions remained whether even if authorized by member states to do so, the rescue fund would have enough money to provide a firewall from a debt contagion that could ensnare larger peripheral economies. Many market players said the euro's rally could fade, especially if peripheral bond yields start to climb back toward recent euro-era highs. Italian and Spanish 10-year yields slipped on Mon day but their funding costs remain high in historical terms. "The optimism will fade as the week unfolds and if yields in Italy and Spain increase there will be further pressure on euro/dollar," said Lutz Karpowitz, FX strategist at Commerzbank in London. "It (the deal) is just spending more money from donor countries and receiving more money from debt-ridden countries. This will lead to political friction and is not a long-term solution." The single currency lost just under 1 percent against the yen to 100.04 yen. On Friday, the euro posted its biggest one-day rise against the yen since March 2011. There was talk of profit-taking in the euro against the yen by hedge funds, traders said.