FOREX-Euro falters but rebound still seen intact

* Euro off two-month highs on profit taking

* Downside seen limited with markets buying on dips

* Euro could test $1.3750 over next month -trader

By Ian Chua and Masayuki Kitano

SYDNEY/SINGAPORE, Jan 20 (Reuters) - The euro dipped on profit taking on Thursday, after having extended its rally to a two-month high above $1.35 overnight, bringing a key technical level in focus that could throw a speed-bump in its path.

Disappointing earnings from Goldman Sachs <GS.N> and weak U.S. housing data on Wednesday hit appetite for riskier assets, giving traders an excuse to book profits on the euro.

"The euro has actually had quite a strong move since the beginning of the year... So it's time for a pause and fall before it trades higher," said a trader for a European bank in Hong Kong.

The euro eased 0.1 percent from late U.S. trading on Wednesday to $1.3459 <EUR=>.

On Wednesday the euro had risen to its highest in about two months of $1.3539 on trading platform EBS, helped by talk of euro buying by Asian central banks and short-covering.

A breach of that peak would bring resistance near $1.3570 in view, the 50 percent retracement of the euro's November to January slide.

"The market is not that short euros now, and there are even a few hot-money longs put on in the last 12-24 hours, but the sentiment still seems strong enough. To me the market mentality has shifted to buy on dips. For now, anything towards $1.34 should attract bids," said a trader at a U.S. investment bank.

Solid bond auctions in Spain and Portugal have eased worries about the euro zone debt crisis, and talk that German officials were drafting contingency plans in case Greece defaults suggested they were working to prevent the crisis from worsening. [nLDE70I158]

"If we can trade through $1.3500 and hold that, I can see it trading up to $1.3750," said the trader for a European bank in Hong Kong. Such a rise could occur in the next month, he said.

Resistance levels clustered around $1.3750 include $1.3739, a 61.8 percent retracement of the euro's November to January slide, as well as $1.3786, the euro's Nov. 22 intraday high.

Also on the retreat, the Australian dollar <AUD=D4> fell 0.5 percent to $0.9955 <AUD=D4>, with one trader citing profit-taking by macro funds.

The Australian dollar briefly pared some of its losses after the official release of Chinese data confirmed that China's consumer inflation eased in December from a 28-month high in November. [ID:nTOE70I026]

The consumer inflation data was in line with figures leaked by Hong Kong media on Wednesday.

The easing of inflation could help lessen the urgency for further immediate tightening measures by China and lend support to risk appetite and the Australian dollar.

The U.S. dollar stabilised in the wake of its broad slide the previous day. It held steady against a basket of currencies at 78.669 <.DXY>, up from a two-month low of 78.303 struck on Wednesday.

Against the yen, the dollar edged up 0.1 percent to 82.12 yen <JPY=>.

One trader said an option barrier at 83.00 yen could limit the dollar's gains in the near-term. The existence of such a barrier means options players are likely to sell the dollar if it rises towards 83.00 yen. (Additional reporting by Hideyuki Sano in Tokyo; Editing by Tomasz Janowski)