Euro declines on funding concern; Swiss franc soars

NEW YORK (Reuters) - The euro fell on Monday, pressured by bank funding concerns and caution ahead of more European debt sales this week, while the Swiss franc rallied after a monetary official said the currency's strength was not harming the Swiss economy.

The euro slid under $1.23 as interbank euro lending rates hit their highest in almost seven months. The single currency's failure to rise above $1.24 and heavy selling in euro/sterling added to the downward momentum.

Banks must repay 442 billion euros ($545.5 billion) to the European Central Bank on Thursday, leaving a potential liquidity shortfall in the financial system of over 100 billion euros.

"The list of negatives for the euro continues to grow. There's never any shortage of reasons to sell it," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey.

In late trading in New York, the euro slid 0.8 percent to $1.2275, near a session low of $1.2265 hit on electronic trading platform EBS and well off an intraday peak of $1.2398. Declines accelerated after the currency fell below $1.2310/15 and hourly support near $1.2290, which triggered stop losses.

Analysts at Action Economics said weak intraday euro/dollar longs have been forced out after the pair moved under 1.2300. From here, bids are expected into 1.2260-50, they said.

The Swiss franc hit a record high against the euro and an eight-week peak versus the U.S. dollar after Swiss National Bank board member Jean-Pierre Danthine was quoted in the l'agefi newspaper as saying deflationary risks have disappeared and Swiss exports have proven to be robust despite a stronger currency.

The euro fell more than 1 percent to a record low of 1.3329 francs, according to Reuters data. Danthine's comments came after the SNB had backed off a pledge to fight excessive appreciation of the franc earlier this month. The dollar fell as low as 1.0818 francs and was last down 0.6 percent at 1.0867 francs.

"Euro/Swiss franc continues to power lower now that the SNB has squarely chosen its inflation objective over an exchange rate intermediary target that led to ballooning domestic liquidity," said Alan Ruskin, head of currency strategy at RBS Global Banking & Markets.

Against sterling, the euro hit a 1 1/2-year low and last traded down 1.1 percent at 81.25 pence.

G20, DEBT AUCTIONS

Financial markets will closely watch debt auctions by France and Spain later this week after tepid demand for Italy's sale of 7 billion euros of government bonds on Monday kept worries about euro zone debt troubles alive.

The premium investors demand to hold 10-year Italian, French and Spanish government bonds rather than euro zone benchmark German Bunds all widened.

"The backdrop (for the euro) still remains fairly negative as you continue to see pressure in the bond markets," said Sacha Tihanyi, currency strategist at Scotia Capital in Toronto. "If you get a very weak bond auction out of Spain, for example, it could really start to hit confidence."

The market showed little reaction to a G20 summit where leaders agreed to take different paths to cutting budget deficits, a reflection of the uneven and fragile economic recovery in many countries.

The dollar index .DXY, which tracks the performance of the greenback versus a basket of six other major currencies, was 0.5 percent higher at 85.699, holding above last week's low around 85.09, which was seen as near-term support.

The latest data from the Commodity Futures Trading Commission showed currency speculators slightly trimmed bets on the greenback and went long on the yen in the week to June 22. Meanwhile, net euro short positions increased.

Against the yen, the dollar was up 0.2 percent at 89.42 yen, after hitting a five-week low of 89.06 on EBS.

(Additional reporting by Vivianne Rodrigues; Editing by Kenneth Barry)