By Wayne Cole

SYDNEY (Reuters) – The euro started the new year at 29-month lows in Asia after the head of the European Central Bank fanned expectations it would take bolder steps on stimulus this month, underlining the U.S. dollar’s rate advantage.

The single currency skidded to $ 1.2054 (EUR=), depths last seen in mid-2012, while the dollar notched up a near nine-year peak against a basket of major currencies (.DXY) and bounded back above 120 yen (JPY=).

The euro was now perilously close to its 2012 trough, and major chart support, at $ 1.2042. A break there would take it to territory not visited since June 2010.

The latest lurch lower came after ECB head Mario Draghi said the central bank stood ready to respond to the risk of deflation. Consumer price data for the euro zone due on Jan. 7 is widely expected to show a fall in annual terms.

“We are in technical preparations to adjust the size, speed and compositions of our measures early 2015, should it become necessary,” said Draghi. “There is unanimity within the Governing Council on this.”

The ECB council meets on Jan. 22 and markets are wagering heavily it will finally decide to start buying sovereign debt, following in the footstep of the U.S., UK and Japan.

Oil was also active on Friday as prices tried to rally on news of a larger-than-expected fall in U.S. crude inventory and a fire at a major U.S. supply facility.

After suffering a savaging last year, U.S. crude futures (CLc1) were up 98 cents at $ 54.25 a barrel, while Brent rose 96 cents to $ 58.29 (LCOc1).

In contrast, stock markets in Asia were quiet with China, Japan, Thailand and the Philippines all on holiday. Australia’s main index (.AXJO) inched up 0.1 percent, while South Korea was down by a matching amount (.KS11). Hong Kong (.HSI) rose 0.3 percent.

MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.2 percent, having ended 2014 almost exactly where it began – a pattern it has repeated for three years straight.

Economic data from the region was generally subdued, with China on Thursday reporting its official Purchasing Managers’ Index (PMI) slipped to 50.1 in December, the lowest level of 2014, from November’s 50.3.

The blow was softened by a rise in the service sector PMI to 54.1, a hopeful sign that services are taking over from manufacturing as a driver of economic growth.

In any case, investors are focussed on the likelihood that Beijing will roll out more stimulus to avert a sharper slowdown which could trigger job losses and debt defaults.

That was one reason Chinese stocks outpaced the rest of the world to end 2014 with an increase of 52 percent .

Wall Street also managed double-digit gains. While the S&P 500 (.SPX) ended Wednesday with a loss of 1.03 percent it was still 11 percent higher for the year.

The Dow (.DJI) eased 0.89 percent on Wednesday, while the Nasdaq (.IXIC) dipped 0.87 percent.

Gold (XAU=) inched up 0.4 percent to $ 1,186.75 an ounce on Friday as higher oil prices boosted its safe-haven appeal, but the metal looked set to post its third straight weekly loss, weighed down by a strong dollar. It ended 2014 down about 2 percent.

(Editing by Kim Coghill)