* 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 (Reuters) - 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 crisis.
“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 Ichimoku chart.
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 of May.