* Euro extends gains vs dollar after Greek bond buyback
* Dollar weakness persists across the board
* Deadlock on U.S. fiscal issue resolution weighs
* Yen recovers after recent slide
By Anooja Debnath
LONDON, Dec 4 The euro extended gains on Tuesday on expectations a buyback of Greek bonds would go smoothly and as borrowing costs for indebted euro zone countries fell.
The euro could see more gains if Spanish and Italian bond yields, which also fell in anticipation of Greece securing more aid money after the buyback, fell further, analysts said.
Concerns U.S. budget talks may be stalling weighed on the dollar and helped push it lower against the euro and to a one-month low against a basket of currencies.
The euro rose 0.2 percent to $1.3082, its highest since Oct. 22, but stalled before a reported options barrier at $1.3100.
If it breaks above $1.3100 traders said it could rise further as stop loss buy orders are triggered, though it would face chart resistance at the October high of $1.3140.
"The euro is gaining a bit of support as the news from the euro zone has been better over the past couple of days," said Ian Stannard, head of European FX strategy at Morgan Stanley.
"The market is taking a fairly optimistic view that we will see a smooth implementation of these (Greek) plans."
He expected the euro to hold firm until the end of the year but warned it could come under selling pressure in 2013 due to the deterioration in the broader euro zone economy.
Morgan Stanley recommend clients enter a long euro/dollar position at $1.3050, with a target of $1.34.
Greece's buyback offer on Monday topped market expectations and improved its chances of cutting its ballooning debt and receiving long-delayed aid.
The buyback is part of a deal reached last week by Greece's international lenders to cut its debt and needs to be completed before the IMF can release its share of the aid.
Meanwhile, worries over efforts to avert the U.S. "fiscal cliff" hobbled the dollar despite its reputation as a refuge in times of uncertainty. Analysts said the dollar had stayed weak because of relatively positive developments in the euro zone.
The dollar fell to a one-month low against a basket of currencies, with its index dropping to 79.706.
The White House dismissed Republican proposals for steep spending cuts late on Monday, heightening concern lawmakers will not reach a deal in time to avert $600 billion in automatic budget measures due in early 2013.
"At the moment the market is ... likely expecting a last minute fudge maybe with some delays and some temporary measures to tide them over to next year," Morgan Stanley's Stannard said.
Elsewhere, the Swiss franc weakened, extending Monday's falls when Switzerland's largest banks said they would charge for some franc deposits. This pushed the euro to 1.21455 francs, its highest since mid-September.
The dollar shed 0.3 percent to 81.95 yen, further from a 7-1/2 month high of 82.84 yen hit last month.
The yen has recovered from a recent slide sparked by the prospect of more monetary easing by the Bank of Japan after a Dec. 16 election, with some investors thinking there may be little scope for further falls.
"We saw an incredible amount of yen weakness in November and this is running out of steam simply because we don't see any additional news flows out of Japan," said Ulrich Leuchtmann, head of FX research at Commerzbank.
"People want to wait until the elections are over and see what the new government is really going to do."
The euro slipped 0.1 percent to 107.21 yen, off Monday's seven-month high of 107.67 yen.