GLOBAL MARKETS-Euro, peripheral debt hit by contagion fears

* Euro/dollar hits fresh 2-mth low

* Portugal, Spain CDS at fresh record wides

* North Korea war talk fuels flight to safety

* Stocks bounce on commodities, earnings

By Simon Jessop

LONDON, Nov 24 (Reuters) - Portugal and Spain’s bond yields rose sharply and the euro slumped to a two-month low on Wednesday on worries they will be the next victims of Europe’s debt crisis.

Spanish and Portuguese government bond spreads to German Bunds both widened on concerns they will not prove able to see off the sort of debt and banking troubles that have pushed Ireland into seeking international aid.

“Fears of contagion permeate the market, despite the (Irish) bailout earlier this week,” said Markit analyst Gavan Nolan.

The Portuguese/German 10-year government bond spread PT10YT=TWEBDE10YT=TWEB hit a euro lifetime high of 481 basis points (bps) from 450 bps, while five-year credit default swaps hit 510 bps over benchmark bunds.

Spain’s spread rose above 250 basis points, while its CDS pushed out to a fresh record wide of 312 bps.

The same concerns helped drive the euro to a two-month low against of $1.3284 the dollar and weaken further against the safe-haven Swiss franc EURCHF=.

“The risk is still to the downside and the euro is very vulnerable due to the Irish crisis and worries about whether Portugal will be next in line,” said Niels Christensen, currency strategist at Nordea in Copenhagen.

A statement from North Korea’s official new agency that Seoul was driving the peninsula to the “brink of war” and was guilty of “reckless military provocation” added to the negative sentiment. [ID:nL3E6MO04H]

Dublin is due to release details of its four-year austerity plan at 1400 GMT, while Portugal's two major unions are holding their first joint strike action since 1988, in protest at Lisbon's planned austerity cuts. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Risks to watch on the Korean peninsula [ID:nRISKKR] Europe debt problems [ID:nLDE68T0MG] Euro zone debt struggle: Multimedia on euro zone ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>


European stocks .FTEU3 turned briefly negative on the Korea news before resuming a bounce from the previous session's six-week closing low, supported by overnight gains in some Asian markets and commodities.

Positive earnings news also boosted the market, as did a surge in the German Ifo business sentiment index to its highest level since 1991.

November’s monthly survey of 7,000 firms pushed Ifo’s Business Climate Index to 109.3, from a revised 107.7 in October. A Reuters poll had predicted a slight fall. [ID:nBEB004484] (Editing by Patrick Graham)