SYDNEY The embattled euro languished at multi-year lows versus the yen and greenback on Tuesday, having been dealt another setback after Moody's changed to negative its outlook for Europe's biggest economy, Germany.
Moody's also turned negative on the Netherlands and Luxembourg warning that Europe's top-rated nations may have to increase support for indebted states such as Spain and Italy.
The news saw the euro give up about 30 pips to $1.2108, not far off Monday's trough around $1.2067 -- a low not seen since June 2010. The euro last stood at $1.2117.
Good support is seen at $1.2024, the 200-month moving average, ahead of the psychological $1.2000. The next target is the 2010 nadir around $1.1876.
Against the yen, the euro fetched 94.91, having on Monday carved out a 12-year trough of 94.23.
"We anticipate to see fresh yearly lows in the EURUSD as European policy makers struggle to restore investor confidence," said David Song, currency analyst at DailyFX.
"Spain is scheduled to auction three and six-month bills on Tuesday, the outcome may highlight a greater threat for contagion, and the ongoing turmoil in Europe may continue to sap risk-taking behavior as the EU maintains a reactionary approach in addressing the debt crisis."
High-beta currencies like the Australian dollar bore the brunt of the rout in risk appetite, even underperforming the euro.
They could come under more pressure if HSBC's July report on the Chinese manufacturing sector, due at 0230 GMT, disappoints.
In June, China's factory sector contracted for an eighth straight month, keeping alive worries of a hard economic landing for the world's second biggest economy.
The Aussie was last at $1.0262, having fallen some 1.2 percent on Monday to be well off last week's peak of $1.0445.
With the euro on the defensive, the dollar hit a two-year high against a basket of major currencies. The dollar index .DXY was at 83.734, not far off the high of 83.999.
On the yen, the dollar bought 78.29, having slid to an eight-week low just under 78.00 on Monday.
This week started off badly for risk assets as markets fear Spain will be next to need a full bailout amid media reports suggesting half a dozen regional authorities were ready to follow Valencia in seeking financial support from Madrid.
Data on Monday showing Spain sank deeper into recession in the second quarter only served to fuel those jitters. Spanish bond yields jumped to euro-era highs on Monday, while Italian yields also rose.
Greece will share centre stage with Spain on Tuesday as inspectors from the international lenders return to Athens to re-launch its stalled economic plan and decide whether to keep the nation hooked up to a 130-billion-euro lifeline or let it go bust.
(Additional reporting by Reuters FX analyst Krishna Kumar; Editing by Wayne Cole)