TOKYO, Japan -- The euro extended its losses against other major currencies in Asia Monday as traders anticipated a hefty interest rate cut by the European Central Bank later this week.

The euro fell to $1.2662 in Tokyo morning trade from $1.2695 in New York late Friday, and dropped to 120.65 yen from 121.19.

The dollar edged down to 95.27 yen from 95.61.

"Investors are still selling the euro, a trend which has not changed from last week," said Masatsugu Miyata, a forex dealer at Hachijuni Bank.

The European currency lost ground last week after data showed annual inflation in the 15-country euro zone sharply fell in November.

The decline set the stage for a steep cut in interest rates by the European Central Bank (ECB) on Thursday, dealers said.

It would be the third interest rate cut in less than two months by the ECB. There is speculation that this week's cut could be bigger than the 50 basis point reduction seen in early November that disappointed markets.

The British, Australian and New Zealand central banks are also expected to lower official borrowing costs this week to tackle economic downturns.

"We expect to see aggressive policy easing in all cases," Standard Chartered analysts predicted. "This presents downside risks to all these currencies against the dollar this week."

The dollar slipped against the yen ahead of key US employment data slated for release on Friday, although traders noted the pair was stuck in a narrow trading range.

Expectations have mounted that the US Federal Reserve will also cut interest rates at its meeting later this month.

The Bank of Japan was also reported to be considering introducing a measure at an extraordinary meeting this week to make it easier for small and mid-sized companies to gain access to credit.