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FOREX-Euro tumbles to multi-month lows on Greece, Spain banks
* Political uncertainty in Greece, Spain banking woes hit euro
* Options-related demand may support in near-term
By Julie Haviv
NEW YORK, May 9 (Reuters) - The euro slumped for an eighth straight session against the U.S. dollar on Wednesday, reaching its lowest level in over three months, on worries about political turmoil in Greece and the fragility of Spain's banking sector.
The euro hit a two-and-a-half month trough versus the safe-haven yen as a jump in Spanish bond yields showed investors were wary of the rising costs of fixing the country's banks, fueling fears the debt crisis could worsen.
"This is a continuation of a trend that has prevailed over the past week, with Greek political disarray likely to be a drag on the euro for the foreseeable future," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, D.C.
"The rise in Spanish bond yields is adding to the bearish tone and is providing investors with yet another reason to distance themselves from the single currency."
Spanish 10-year bond yields rose above 6 percent - a point away from levels deemed unsustainable - and investors kept a wary eye on Athens, where efforts to form a government were expected to fail, putting its bailout deal in doubt and raising the possibility of Greece being forced off the euro.
The euro fell as low as $1.2929, its lowest since Jan. 23. and last traded at $1.2946, down 0.4 percent on the day.
Against the yen, the euro was at 103.04, down 0.8 percent, after hitting a low of 102.85, its lowest since Feb. 16.
Greece's two main pro-bailout parties failed to win a majority in weekend elections, leaving questions over the country's ability to avert bankruptcy.
In France, President-elect Francois Hollande has advocated an approach to tackling the debt crisis centered more on growth, which may create tensions with Germany's insistence on fiscal austerity.
Options traders said the euro may receive some support because of potential demand for euros related to option barriers at $1.2950 and below. The existence of such barriers means options traders might step in to buy the euro if the currency dips close to those levels.
"In the next four weeks we should know who is controlling Greece, whether or not it runs out of money or chooses to adhere to its bailout terms and how the Spanish government plans to sort out its banking sector," said Kathleen Brooks, Research Director at FOREX.com.
"There are high levels of market risk associated with all of these events, which we believe is euro negative."
A souring in investor appetite for risk gave broad support to the low-yielding yen, which tends to rise when investors look to park their money in safer assets such as German bunds and U.S. Treasuries.
"The safe-haven flows into Treasuries depressed yields, which along with the yen's safe-haven status, is a key reason why it is higher today," said Western Union's Manimbo.
The Japanese currency climbed to a two-and-a-half month high versus the dollar at 79.41. It dollar last traded at 79.58, down 0.4 percent on the day.
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