* Diminishing status as reserve currency seen hurting euro

* Euro slide accelerates after breach of $ 1.20 threshold

* Dollar index hits fresh 9-yr high, pound hits 17-month low

By Shinichi Saoshiro

TOKYO, Jan 5 (Reuters) – The euro fell to a nine-year low against the dollar on Monday as bets mounted on a further decline for the currency, faced with the possibility of more monetary easing by the European Central Bank and its diminishing status as a reserve currency.

The euro was already battered after ECB President Mario Draghi late last week underscored the divergence between European and U.S. monetary policy, set to remain a key theme in 2015.

The common currency fell to $ 1.1860, its lowest since March 2006.

Draghi told the German financial newspaper Handelsblatt that the ECB was less likely to preserve price stability than it was six months ago, suggesting it was ready to take bolder steps on monetary stimulus early this year to shore up the economy and ward off deflation.

“There were basically three factors that pushed the euro lower. First was Draghi’s comment, second was the prospect of a weak euro zone inflation data print on Wednesday and lastly IMF’s central bank statistics,” said Yunosuke Ikeda, senior FX strategist at Nomura Securities in Tokyo.

Such themes are of key importance to hedge funds, who appear set to follow through this year with selling the euro and buying the dollar, Ikeda said.

The share of currency reserves denominated in the euro held by central banks fell to its lowest in over a decade in the third quarter of 2014, IMF data showed.

The euro’s descent accelerated as stop-loss sales were triggered when the $ 1.20 threshold was tested then breached.

Boosted by its gains against the euro, the dollar climbed to a fresh nine-year peak against a basket of key currencies. The dollar index touched 91.456, its highest since December 2005.

The dollar dipped 0.2 percent to 120.280 yen after gaining nearly 0.6 percent on Friday.

Sterling, hit Friday after weak U.K. manufacturing further diminished prospects of Bank of England hiking rates in 2015, fell to a fresh 17-month low in wake of the dollar’s overall gains.

The pound fell as low s $ 1.5185 before pulling back to $ 1.5302.

(Editing by Stephen Coates)