FOREX-Dollar, yen up as stocks stumble, auto woes weigh

* US auto woes, Spanish bank rescue dull risk appetite

* Dollar, yen up broadly, technically shaky euro slides

* Heavy event risk this week as ECB, G20 meetings loom

* Stocks fall sharply, adding to risk-aversion trades (Updates prices, adds comment)

By Steven C. Johnson

NEW YORK, March 30 (Reuters) - The dollar and yen rallied on Monday as fears of bankruptcy for U.S. automakers General Motors and Chrysler prompted anxious investors to cut exposure to risk and seek safety in the U.S. and Japanese currencies.

The euro continued to retreat from last week's two-month high above $1.37, falling below $1.32 after Spain was forced to take over a regional savings bank, its first rescue since the financial crisis began, and Hungary's credit rating was cut.

That added to selling by those anticipating a cut in euro zone interest rates this week and increased the appeal of the dollar and yen, which tend to rise in times of trouble as investors repatriate funds from higher-yielding currencies and relatively riskier assets such as stocks.

"The poor start to the week in global equity markets has acted as a speed bump for the broad rally in risk appetite we'd been seeing, and its roots are in renewed concern about the financial sector and U.S. auto sector," said Todd Elmer, senior currency strategist at CitiFX in New York.

U.S. stocks swooned after the White House rejected funding pleas from GM (GM.N) and Chrysler and forced out GM's CEO, pushing the ailing carmakers closer to possible bankruptcy.

That added to worries stoked over the weekend when U.S. Treasury Secretary Timothy Geithner said some banks will need large amounts of assistance -- remarks that BMO Capital Markets currency analyst Andrew Bush said "put the bulls-eye back on the financial sector."

The euro was last down 1.3 percent at $1.3133 , its lowest since March 18 and near a $1.3118 session low. It lost 2.2 percent to 127.18 yen, a two-week low .

Standard & Poor's move to cut Hungary's long-term foreign currency rating added to pressure on the euro by refocusing attention on troubles in central and eastern Europe, a region to which euro zone banks are heavily exposed.

"It's rubbing salt in the wound and adds pressure to the euro, and as long as stocks continue to fall, we'll shoot for $1.31, where there's strong buying interest," said GFT Forex's Boris Schlossberg.

Analysts say $1.31 is the euro's next technical target on the downside because it marks the 50 percent retracement level of its March rally from $1.2455 to $1.3737.

Sterling fell 1.2 percent to $1.4150 while the dollar shed 1 percent to 96.81 yen .

Dennis Gartman, an independent investor and author of The Gartman Letter, said yen gains may also be tied partly to the view that Japan's carmakers stand to benefit from GM's and Chrysler's continuing woes.

The White House said it would only fund GM for the next 60 days while it develops a more convincing restructuring plan.

Widespread market anxiety on Monday was in stark contrast to a growing sense of optimism that lifted stock markets over the last few weeks and dimmed the dollar's safe-haven appeal.

Despite the improvement in risk appetite over the last few weeks, "there were still a few banana skins out there," said Daragh Maher, deputy head of global FX strategy at Calyon.

One such could be the European Central Bank's meeting on Thursday. Rates are seen falling to 1 percent from 1.5 percent, and markets will be on alert for signs the ECB plans to follow the U.S., British and Japanese central banks by purchasing government or corporate debt to free up credit and lending