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FOREX-Euro and dollar hit by political drama; yen, Swiss franc up

* Political crisis in Italy weighs heavily on euro

* Euro hits three-week low vs yen, 3-month lows vs Swiss franc

* Dollar falls to one-month low on yen as U.S. shutdown deadline looms

By Ian Chua

SYDNEY, Sept 30 (Reuters) - The euro fell hard in Asia on Monday with Italy in the grip of a fresh political crisis, while investors also sold the greenback as a midnight deadline to avert a shutdown in Washington loomed large.

Both the safe-haven Swiss franc and yen benefited as a result. The euro fell to a three-week low of 131.38 yen from around 132.78 late in New York on Friday. It shed 0.3 percent to 1.2218 Swiss francs, reaching a trough not seen since late June.

The dollar slid to a one-month low of 97.53 yen from 98.20 late in New York, but managed to outperform the euro, which slipped 0.2 percent to $1.3491.

Investors took aim at the common currency after Silvio Berlusconi pulled his ministers out of the government on Saturday and called for new elections, just seven months after the last vote.

The sudden move has forced Italian Prime Minister Enrico Letta to call for a confidence vote on Wednesday.

Letta has a commanding majority in the lower house, and if he can gain support from a few dozen senators among dissenting Berlusconi followers or opposition parties, he could form a new government.

Across the Atlantic Ocean, both sides of the political divide are still locked in a bitter debate on a health programme that has been tied to new government funding measures.

The standoff is a harbinger of the next big political battle: raising the federal government's borrowing authority. Failure to do so by mid-October may result in a historic debt default that could cripple the U.S. economy and send shockwaves around the globe.

"Apprehension is probably the word. The U.S. is still heading towards shutdown, the Italian government is heading for a confidence vote that probably precedes elections. Farce reigns and risk aversion rises," said Kit Juckes, strategist at Societe Generale.

Heightened risk aversion also weighed on commodity currencies. The Australian dollar dipped 0.3 percent to reach a two-week trough of $0.9292.

The market's immediate focus will be on HSBC's final report on China's manufacturing activity data due at 0145 GMT, followed by Beijing's own reading on the sector on Tuesday.

Amid the gloom surrounding Italy and the United States, China has been a bit of a bright spot with recent data suggesting the world's second-biggest economy has pulled out of a slowdown.

Any disappointment will only add to the market's risk averse mood.