* Euro losses deepen as fears of euro debt contagion
dominate
* Euro dips as far as $1.2936, hits 9-month low on pound
* Dollar at 1-year high on index, near 8-month high vs yen
By Charlotte Cooper
TOKYO, May 5 (Reuters) - The euro sank to a new one-year
low on Wednesday, with its sell-off deepening as fears about
contagion in the euro zone gripped investors, while the dollar
was the chief beneficiary of the rising risk aversion.
The dollar hit a one-year high against a basket of six big
currencies <.DXY> and climbed to its strongest since last May
against the Swiss franc as share markets around Asia lost
ground.
The euro notched another one-year low at $1.2936 <EUR=>,
with analysts and traders citing $1.2880-85 as the next target,
the low of April last year, and a breach there seen as opening
the way for a test of $1.25, a level not seen since March 2009.
The euro shed more than 1.5 percent on Tuesday, its
steepest one-day loss since last June, and broke through key
support around $1.3000, fuelled by concerns that Greece's debt
problems would spread to other economies such as Spain and
Portugal.
"The euro is now on a clear downward trend and that's quite
entrenched now," said Gregg Gibbs, FX strategist at Royal Bank
of Scotland in Sydney.
"There are no real safe-havens out there at the moment but
I guess the market will be looking at the dollar as the best of
the worse bunch."
The single currency struggled at $1.2952 at 0500 GMT, down
0.3 percent on the day.
It has lost nearly 3 percent just this week, as investors
remain highly sceptical Greece will be able to carry out the
tough austerity measures it promised in return for 110 billion
euro aid package from the European Union and the International
Monetary Fund. []
Spreads between benchmark German Bunds and Portuguese and
Spanish bonds widened on Tuesday, while the cost of insuring
against a Greek default rose. The two-year Greek yield surged
by more than 400 basis points to over 16 percent in one its
biggest one-day drops since the Greek debt crisis erupted
earlier this year.
The euro also fell to its weakest level against the pound
in nearly nine months, stumbling to 85.54 pence <EURGBP=D4>,
according to Reuters data, down about 0.2 percent on the day.
"That will have the market thinking about further falls in
euro/sterling, targeting initially perhaps around 84.50 or the
lows in the middle of last year around 84," Gibb said.
Sterling was flat against the dollar at $1.5137 <GBP=D4>
after falling to its lowest in a month below $1.5100 on
Tuesday. It faces its own test this week in the form of tightly
contested national elections on Thursday in which markets are
concerned there may be no clear winner. []
[]
Fears about the spread of Greece's debt crisis have driven
investors to the safety of the Japanese yen and the U.S.
dollar, considered safe-haven investments when risk aversion
spikes.
"Everything really depends on what news flow comes out of
Europe over the next few days," said Gareth Berry, currency
strategist at UBS in Singapore. "Our analysis shows people are
not just short-covering, they have been buying the dollar for
the past couple of weeks."
The dollar index rose 0.3 percent to 83.567, after climbing
as far as 83.649, and the greenback was up 0.2 percent at
1.1052 Swiss francs <CHF=> after touching 1.1075 francs.
It gained 0.2 percent on the yen to 94.73 yen <JPY=>,
although it stopped short of an eight-month high of 94.99 yen
struck on Tuesday, with talk of option barriers at 95 yen and
exporter offers around there expected to limit gains.
Traders said the dollar was supported by signs the U.S.
economy was on the mend. Data released on Tuesday showed
pending U.S. home sales rose 5.3 percent in March while factory
orders rose 1.3 percent. Both numbers beat forecasts.
[]
Investors expect Friday's U.S. payrolls report to show
another month of job gains in April. Strong economic data has
reinforced views that the Federal Reserve could raise interest
rates from near zero this year, while Europe's debt woes are
likely to keep euro zone rates on hold in 2010.
The low-yielding yen has also benefited this week from a
mixture of buying and short-covering, although Japanese markets
are shut until Thursday for the Golden Week holiday.
The euro dipped as far as 122.51 yen <EURJPY=R> before
edging back to 122.76, having lost 1.6 percent in the previous
session. Other yen crosses staged a small rebound after losing
1-2 percent in the previous session.
(Additional reporting by Anirban Nag in Sydney; Editing by Jan
Dahinten)
