* Euro falls after Moody's says may cut Spain rating
* Euro debt worries lift Swiss franc to record vs euro
* Dollar gains ground as Treasury yields rise
(Updates prices, adds detail)
By Jessica Mortimer
LONDON, Dec 15 (Reuters) - The euro fell against the dollar
and hit a record low versus the Swiss franc on Wednesday after
Moody's said it may downgrade Spain's debt rating, refocusing
attention on contagion risks from the euro zone crisis.
The Swiss currency gained as worries about debt problems in
some European countries encouraged investors to reduce exposure
to riskier euro zone assets and seek safer alternatives.
Moody's put Spain's Aa1 ratings on review for a possible
downgrade, citing concerns about its mounting debt and 2011
funding needs, though it did not believe Spain would need an EU
bailout, as Greece and Ireland have. []
Contributing to the euro's fall, the dollar firmed after
upbeat economic data lifted U.S. bond yields, enhancing the
appeal of U.S. assets.
Concerns lingered, however, that U.S. fiscal problems could
worsen due to a proposed extension to tax cuts even if the move
helps the economy. Traders said that for some investors this
made the Swiss franc a more attractive safe-haven asset than the
dollar.
"The U.S. story is still very important, and the extension
of the Bush tax cuts has enhanced the Swiss franc's safe haven
status," said Stephan Maier, currency strategist at Unicredit in
Milan.
He said the Moody's statement had weighed on the euro, but
that the euro was also weakening due to portfolio rebalancing
and investors reducing risks ahead of the end of the year.
The euro was down 0.3 percent against the dollar at $1.3351
<EUR=>, off an earlier low of $1.3285 where traders reported
sovereign demand for the single currency.
The euro was down 0.2 percent at 1.2814 Swiss francs
<EURCHF=>, having hit a record low of 1.2758 on trading platform
EBS.
The Moody's report on Spain pushed Spanish bond yields
<ES10YT=RR> higher. []
The focus is likely to remain on debt problems in the euro
zone periphery, with a Portuguese debt auction on Wednesday
showing yields rising [], while Ireland's
parliament is due to vote on an 85 billion euro EU/IMF rescue
package later in the day. []
"There is an unwillingness among investors to hold riskier
euro zone bonds over the year end so they are selling and going
into Swiss francs," said Carl Hammer, currency strategist at SEB
in Stockholm.
He added that financial markets had not priced in the risk
of Spain needing financial aid, which left plenty of scope for
further falls in euro/dollar in the first half of 2011.
U.S. YIELDS
The dollar gained 0.2 percent against a basket of major
currencies to 79.530 <=USD><.DXY>, moving away from a three-week
low of 78.819 plumbed on Tuesday.
The 10-year U.S. Treasury yield hit a seven-month high just
above 3.50 percent in Asian trade, helped by above-forecast U.S.
retail sales data. []
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For a FX column on U.S. yields and the dollar, click:
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The Federal Reserve reaffirmed after a policy meeting on
Tuesday its commitment to buy $600 billion in bonds as it
attempts to boost the economy. []
The dollar rose 0.2 percent to 83.82 yen <JPY=> while the
higher-yielding Australian dollar <AUD=D4> fell 0.6 percent to
$0.9928, hurt by risk aversion as stocks and commodity prices
fell.
U.S. data on Wednesday includes November consumer prices and
industrial output. <ECONUS>
(Additional reporting by Neal Armstrong; Editing by Hugh
Lawson)
