* Euro hit by warnings on European banks ratings

* Yen buying on risk aversion may wane on Japan political woes

* U.S. auto restructuring plans fail to move market

By Kaori Kaneko

TOKYO, Feb 18 (Reuters) – The euro hit a fresh 2-½ month low against the dollar on Wednesday after warnings from ratings agencies fuelled fear that a deep recession in Eastern Europe would cause more damage to European banks.

Moody’s Investors Service threatened to downgrade euro zone banks with significant exposure to the weakening economies in Eastern and Central Europe, and Standard & Poor’s said it may review emerging Europe bank ratings. [ID:nLH423223]

“With growing credit concerns in Europe, investors seem to be continuing to unwind their positions and securing cash in dollars,” said Saburo Matsumoto, senior manager at Sumitomo Trust Banking.

The euro fell as low as $1.2558, its lowest since Dec. 4, though it later inched up 0.1 percent from late U.S. trade on Tuesday to $1.2598 <EUR=>.

The euro was down 0.2 percent at 116.04 yen <EURJPY=R>.

Currency market players said they were watching how Asian stock markets perform but falls may not prompt yen purchases on risk aversion as much as in the past due to concerns about Japanese political turmoil and the weakening Japanese economy.

Tokyo’s Nikkei share average .N225 fell 1.2 percent.

Japan’s finance minister resigned on Tuesday after being forced to deny he was drunk at a G7 news conference, though the move may be too late to save unpopular Prime Minister Taro Aso or the long-ruling party from voters’ wrath. [ID:nT79787]

Japan’s economy shrank sharply in the fourth quarter of 2008, confirming the world’s second-biggest economy is in a severe recession, data showed this week. [ID:nLG472278]

The dollar fell 0.2 percent to 92.15 <JPY=> after it rose to a more than one-month high of 92.75 yen on Tuesday.

The dollar index, a gauge of its performance against six major currencies, slipped 0.1 percent to 87.671 but stayed near a nearly three-month high of 87.864 hit the previous day.

The market showed little reaction to restructuring plans submitted by U.S. auto giants as they yielded no surprises, traders said.

General Motors Corp  requested up to $30 billion more and Chrysler LLC CBS.UL sought another $5 billion in U.S. government aid for their survival. [ID:nLH575804]

The White House said on Tuesday it would carefully review the plans but said it was clear more would be required of the companies and stakeholders.

“The market is waiting for the U.S. government’s assessment of the automakers’ plans. There is a risk of dollar selling but the dollar’s reaction will depend on the review results,” said Yuji Saito, head of the FX sales department at Societe Generale.

Investors will be monitoring U.S. economic data including housing market and industrial production figures later on Wednesday for incentives.

Also on Wednesday, U.S. Federal Reserve Chairman Ben Bernanke is scheduled to make a speech on the central bank’s lending programmes and its balance sheet, while the minutes from the Fed’s January meeting will be released. (Editing by Chris Gallagher)