* Euro hovers near 3-week lows versus dollar and yen
* Spain auction highlights periphery stress, Draghi downbeat
* Grim euro zone economic outlook contrasts with U.S. optimism
By Neal Armstrong
LONDON, April 5 (Reuters) - The euro hovered near a three-week trough against the dollar on Thursday and could be in line for further losses prompted by a deteriorating economic outlook in the euro zone and a weak Spanish bond auction.
After holding interest rates at a record low of 1.0 percent of Wednesday, European Central Bank President Mario Draghi said "downside risks to the economic outlook prevail" and dismissed talk of an exit strategy from accommodative policy measures.
Rising yields at Spain's debt sale showed investors are increasingly worried over the health of the country's finances as its economy sinks into recession
"If we continue to see Spanish yields pushing out, the euro should broadly come lower and I'm happy to stick with a short position for now, looking to take profit near $1.3000" said Jeremy Stretch, head of currency strategy at CIBC.
"There's a realisation that structurally the periphery of Europe remains under extreme stress," he added.
The euro and high-yield currencies have also been under pressure against the dollar after Federal Reserve policy meeting minutes released on Tuesday showed the U.S. central bank was becoming less eager to print more money to bolster the economy.
The euro, which dropped nearly 1 percent to $1.3107 on Wednesday, was at $1.3129, down 0.1 percent on the day.
Technical analysts said Wednesday's close in the euro below the 55 and 100-day moving averages was a negative signal, while near-term support loomed around $1.3094, the 76.4 percent retracement of the mid-to-late March rise.
Traders worry that the rally in debt of euro-zone peripheral nations sparked by the European Central Bank's two Long-Term Refinancing Operations may be coming to a screeching halt.
The yield on Spain's 10-year bond leaped to 5.7 percent, its highest since January. This overshadowed a successful step back into debt markets by similarly highly indebted Portugal.
"With concerns over Spain peaking through and political risk ever more apparent with the upcoming French and Greek elections ahead, we reiterate our EURUSD forecast of 1.28 by end of Q2," BNP Paribas said.
The euro has failed to clear $1.3400 and the market now seems keen to first test the floor of a two-month range around $1.3000. Against the yen, the euro was down 0.2. percent at 108.05, not far from a three-week low around 107.91 hit the previous day.
The dollar index, tracking the greenback's performance against major currencies, remained close to a two-week high of 79.92 but had given back a bit of ground to 79.72.
With the dollar holding on to most of its chunky gains, the Australian dollar struggled to decisively pull away from a three-month low of $1.0243 plumbed on Wednesday even though data showed China's services sector expanded solidly in March.
The Aussie was at $1.0293, with a 1.7 percent gain by the Shanghai stock market helping it to hold above support at $1.0263, the 50 percent retracement of the November-February rally. China is Australia's biggest export market.
The dollar slipped 0.2 percent versus the yen as traders trimmed short yen positions ahead of the Easter holidays and the all-important U.S. jobs data which will be released in holiday-thinned conditions on Friday.
The U.S. economy is expected to have added 203,000 jobs last month, after February's non-farm payrolls rose 227,000.