* Euro shaky, markets wary of euro zone developments
* Turnaround on Wall Street helps, but sentiment still bearish
* BOJ set to leave policy unchanged; EU inflation data eyed
SYDNEY, Nov 16 (Reuters) - The euro was being slowly eroded in Asia early on Wednesday, having suffered two straight days of declines as the euro zone debt crisis threatened to engulf top-rated members such as France.
The common currency fell as far as $1.3497 overnight as French bond yield spread over benchmark German bunds hit euro-era highs, and Italian yields shot back above the critical 7 percent level.
It last stood at $1.3525, versus $1.3546 late in New York, below the ichimoku cloud base at $1.3568. A break and close below $1.3480 will pave the way for a move back to the Oct (KOSDAQ: 039200.KQ - news) . 4 trend low at $1.3145, traders said.
A turnaround on Wall Street, which closed in positive territory on the back of stronger-than-expected U.S. data helped halt the euro's slide. But overall sentiment remained bearish.
"While it is clear that the data in the U.S. is improving, European concerns far outweigh at present," said David Scutt, a trader at Arab Bank Australia in Sydney.
"Markets are clearly expecting a circuit breaker to alleviate pressure on periphery bond yields. If no announcement is forthcoming in the days ahead, one suspects that situation could unravel fairly quickly."
Political developments in the euro zone two hot spots were mixed. In Rome, Prime Minister designate Mario Monti will meet the Italian president on Wednesday to present a new government.
But in Athens, Greek conservatives said they would not bow to "dictates from Brussels" over a bailout designed to save their country from bankruptcy and safeguard the euro.
The wobbly euro lifted the dollar index towards 78.000, well off week's low of 76.751. As a result, commodity currencies retreated, with the Australian dollar dipping below $1.0200 once again.
"As the focus on Europe (Chicago Options: ^REURUSD - news) persists, speculation of an impending multi-notch ratings downgrade of Italy only added fuel to the fire," BNP Paribas (Other OTC: BNPQF.PK - news) analysts warned.
The dollar held steady against the yen at around 77.00 , with the threat of more intervention by Japan (EUREX: FMJP.EX - news) keeping investors wary of buying the Japanese currency.
While U.S. data, including retail sales, offered hopes the world's biggest economy has not lost momentum going into the fourth quarter, euro zone data painted a grimmer picture.
The region barely grew in the third quarter, fanning jitters it might slide into recession early next year.
Euro zone and U.S. inflation data are next in focus and a stronger-than-expected result for Europe may dim prospects for a follow-up interest rate cut by the European Central Bank.
Ahead of that, the Bank of Japan will announce the outcome of its policy setting meeting. Due at 0330-0500 GMT, the BOJ is expected to sit pat on policy, having eased just three weeks ago. (Additional reporting by IFR's John Noonan; Editing by Wayne Cole)
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