* Euro hits 1-mth lows vs dollar, yen, ECB seen cutting rates
* Euro also hurt by S&P ratings warning on Spain
* New Zealand dollar tumbles after S&P rating outlook cut
By Satomi Noguchi
TOKYO, Jan 13 (Reuters) - The euro fell against the dollar and the yen on Tuesday, hitting one-month lows as expectations mounted that the European Central Bank will cut interest rates this week.
The euro extended losses, also dragged down by a potential downgrade of Spain's top "AAA" rating by Standard and Poor's that heightened worries about the euro zone's economic outlook.
The euro's fall against the dollar was also partly due to the greenback's gains against the New Zealand dollar, after Standard and Poor's warned that New Zealand's foreign currency debt rating could be downgraded, traders said.
The New Zealand dollar fell to a one-month lows below $0.5600 against the dollar and the kiwi also hit its lowest in a month against the yen.
"Concerns about the sustainability of the economic impact from stimulus plans and the growing fiscal burden worldwide are surfacing after hopes about government spending dominated the market last week," said Masaki Fukui, a senior market economist at Mizuho Corporate Bank.
"The market has become sensitive to bad news such as credit outlook downgrading, especially with many investors now considering where they should be repatriating funds from, instead of investing to," Fukui said.
The euro dropped 0.7 percent from late Monday New York trade to $1.3261, after hitting a one-month low of $1.3240 on trading platform EBS.
Against the yen, the euro was down 0.6 percent at 118.50 yen, after falling as low as 118.30 yen on EBS, also a month low.
Markets expect the ECB to cut key interest rates by 50 basis points to 2 percent on Thursday, a Reuters poll showed. Money market futures on Monday showed investors see a 75 basis point cut, and some were bracing for a full percentage point move.
"Since the euro has been sold recently, investors may cover their short positions if the ECB slashes rates as expected, but the short-covering will not last long," said Saburo Matsumoto, senior manager at Sumitomo Trust & Banking.
He said chances of an ECB rate cut were high but if the central bank left rates steady the euro would be weighed down, as the market would question the bank's flexbility in taking measures to counter the recession.
The dollar edged up 0.2 percent against the yen to 89.30 yen but stayed near a three-week low of 88.89 yen hit the previous day, not far off December's 13-1/2-year trough just above 87 yen.
Traders said falling global stock markets revived investor risk aversion and prompted investors to move away from higher-yielding currencies like the Australian and New Zealand dollars to the perceived low risk of the yen.
Tokyo shares fell 4.8 percent, with Sony Corp tumbling on a report of an operating loss and after concerns about massive credit losses at Citigroup knocked U.S. shares down the previous day.
KIWI DIVES
Germany's ruling coalition reached agreement on Monday on a new economic stimulus package worth 50 billion euros ($67 billion), but the plans have also sparked budget concerns.
Analysts said growing fiscal burdens were a worldwide concern and a potential negative factor for all major currencies, but the euro appeared to be an immediate selling target after Spain became the third euro zone country since Friday to be warned by rating agency S&P that its credit rating is under threat.
"The driver of the market right now is the euro," said a trader at a Japanese bank.
"A falling U.S. stock market is a worry for the dollar, but in the near term the market is likely to focus on the deteriorating economic outlook in the euro zone," the trader said.
As in the case of Ireland and Greece last Friday, S&P said Spain faces a painful rebalancing of its economy and a marked deterioration of its public finances.
The New Zealand dollar tumbled to one-month lows against the dollar and the yen as S&P said the country's revised outlook reflected growing external imbalances in the economy and the need for a fiscal plan to counter the growing current account deficit.
The kiwi fell 2.3 percent to $0.5610 after touching $0.5592, the lowest since mid-December, and slid to a one-month low of 49.97 yen. (Additional reporting by Kaori Kaneko; Editing by Michael Watson)