* Euro near last week's low just below $1.25
* Eyes on whether Spanish govt bond yield hits 7 pct
* EUR short-covering may be curbed ahead of Irish referendum
By Hideyuki Sano
TOKYO, May 29 The euro wobbled near a two-year
low against the dollar on Tuesday as concerns about the cost of
shoring up the Spanish banking system pushed up Spanish debt
yields, offsetting a slight easing in worries about Greece.
The 10-year Spanish bond yield rose to around 6.5 percent,
driving the risk premium on Spanish government debt over German
bunds to a euro-era high of 515 basis points, raising fears the
euro zone's fourth biggest economy may fall victim to the debt
"Although pessimism over Greece is somewhat receding,
worries about Spain are growing, with markets watching whether
the Spanish bond yield will hit the seven percent mark," said
Masafumi Yamamoto, chief FX strategist at Barclays in Tokyo.
Many market players view seven percent for a 10-year yield
as unsustainable. The three euro zone countries that have
requested bailouts all did so soon after their bond yield rose
above seven percent.
The euro stood at $1.2525, off Monday's high of
$1.2625 and near last week's two-year low of $1.2495. The euro
gave up most of the gains made on Monday after Greek polls
showed more support for pro-bailout parties ahead of the
country's election on June 17.
Against the yen, the common currency fetched 99.68 yen
, near a four-month low of 99.37 yen hit last week.
Any buying in the euro may also be curbed ahead of Ireland's
referendum on Europe's new fiscal treaty on Thursday, although
the market is cautiously optimistic that the Irish will support
the treaty on fear that a "no" vote could add fuel to the fire.
While the treaty needs the approval of only 12 of the 17
euro zone countries to be ratified, a rejection by the Irish -
the only nation offered a popular vote on the pact - would
undermine Europe's strategy for overcoming the crisis.
The risk averse mood helped to support the yen, with the
dollar stood not far from its three-month low of 79.002 yen,
last trading at 79.55 per dollar.
The 79 yen level is seen as a major support, while strong
resistance is seen at 80.41 yen, the top of cloud on weekly
The Australian dollar fell 0.3 percent in early trade to
$0.9822, though it is still about 1.4 percent above a
six-month low of $0.9690 hit almost a week ago.
In addition to worries about Europe, concerns about a
slowdown in China - Australia's main export market - and other
emerging economies have weighed on the growth-sensitive Aussie
for about a month.
In one positive technical development, however, the Aussie
rose above the top of its downward channel since the beginning