China Trade Surplus $6.5 Billion, Less Than Expected

* Euro probes $1.35 as euro zone debt worries return

  * Dollar firmer, further gains possible this week

  * Yen bounces off 3-week low on Japanese corporate bids

  * Aussie dollar cautious ahead of Chinese data

  By Ian Chua and Hideyuki Sano

  SYDNEY/TOKYO, Feb 14 (Reuters) - The euro teetered at a key technical level against the dollar on Monday, with a break of that support seen likely to deepen its decline as markets turn cautious ahead of a slew of events this week.

  Among them, fund-raising by Italy and Spain in the bond market will be closely watched, especially after Portuguese government bond yields recently jumped to euro-era highs, renewing worries about the funding costs of highly indebted euro zone countries.

  The yen bounced back from a three-week low on buying by Japanese companies, though traders say it looks increasingly under pressure on charts.

  The euro slipped 0.2 percent from late U.S. levels to $1.3526, struggling to recover above its 100-day moving average at $1.3542, although it managed to stay above a three-week low of $1.3497 hit late last week.

  A break of the widely perceived pivotal level of $1.35 could quickly see a test of $1.3483, a level representing a 38.2 percent retracement of its Jan. 10-Feb. 2 rally.

  " But the next level in the $1.33s will hold it. I can't see anything between the U.S. and Europe which would drive it below that at this point without some significant deterioration in conditions in Europe," said Gregg Gibbs, a strategist at RBS.

  Some traders also said the euro is being helped by persistent speculation of buying by Asian central banks.

  " On one hand you have rising credit spreads in the euro zone, but on the other hand many traders see some buying," said Katsunori Kitakura, chief dealer at Chuo Mitsui Trust and Banking.

  With the euro on the back foot, the dollar was not far from its highest level in three weeks against a basket of six major currencies. The dollar index stood at 78.347, compared with the high of 78.697 hit on Friday.

  Versus the yen, the greenback slipped 0.3 percent to 83.16 yen as Japanese exporters took advantage of its rise last week to a three-week high of 83.68 yen.

  Upbeat U.S. data had helped shore up the dollar in the past few sessions as investors covered short positions

  " We're seeing a better trend for the dollar as U.S. economic numbers are improving," said Gibbs at RBS. A raft of U.S. data is due this week including retail sales and consumer prices.

  Also helping dollar/yen is the fact that the U.S. 10-year real yield has reached 2.4 percent, the highest within the G10, while Japan's real 10-year sovereign yield is a more modest 1.2 percent, BNP Paribas analysts said.

  Data from the Commodity Futures Trading Commission showed speculators raised bets against the dollar to the highest level since October for the week to Feb. 8, meaning there could be scope for further dollar gains if markets cut short positions.

  Japanese investors may sell the dollar from coupon payments on U.S. Treasuries on Feb. 15 and Japanese firms' repatriation ahead of the financial year-end on March 31 could cap the dollar, at least in Asian trade, traders say.

  But the dollar looks increasingly firm on charts, having broken clearly above various moving averages, including its 21- and 55-day averages, in the past few sessions, with the next possible target seen at its December resistance around 84.50 yen.

  " If the dollar/yen rate breaks above 84.50 yen, that would change the whole sentiment of the market," a trader at a Japanese bank said.

  Also closely watched this week is a batch of Chinese data including inflation scheduled for release on Tuesday. Analysts polled by Reuters expect inflation to have accelerated to 5.3 percent from 4.6 percent.

  A stronger-than-expected reading could fuel worries that China will have to lift interest rates more aggressively, raising the risk of slower growth.

  This could put the Australian dollar under pressure.

  But as Shanghai shares gained on speculation about softer inflation data, the Aussie gained 0.35 percent to $1.0058. (Additional reporting by Masayuki Kitano in Singapore and Reuters FX analysts Krishna Kumar in Sydney and Rick Lloyd in Singapore Editing by Michael Watson)