LONDON, Dec 15 (Reuters) - The euro fell on Wednesday after ratings agency Moody's said it may downgrade Spain's debt, refocusing the market's attention on the risks of contagion from the euro zone crisis.
The Swiss franc hit a record high against the euro as worries about debt problems in some European countries encouraged investors to reduce exposure to riskier euro zone assets and seek safer alternatives.
Contributing to the euro's falls, the dollar gained broadly as upbeat U.S. economic data lifted U.S. bond yields, which enhanced the appeal of the greenback.
Moody's put Spain's Aa1 ratings on review for a possible downgrade, citing concerns about its mounting debt and 2011 funding needs, though it did not believe Spain would need an EU bailout, as Greece and Ireland have. [ID:nL3E6NF0D8]
"There is an unwillingness among investors to hold riskier euro zone bonds over the year end so they are selling and going into Swiss francs," said Carl Hammer, currency strategist at SEB in Stockholm.
He added that financial markets had not priced in the risk of Spain needing financial aid, which left plenty of scope for further falls in euro/dollar in the first half of 2011.
The euro was down 0.5 percent against the dollar at $1.3315 EUR=, having dropped below $1.3300 to take it two cents below a high of $1.3500 touched on Tuesday.
Against the Swiss franc EURCHF= the euro was down 0.5 percent at 1.2772 francs, having hit a low of 1.2761.
Chartists said that if the euro could hold above support in a band above $1.3280, it could re-test $1.3500. But if that support band gave way, the euro was likely to slip into a $1.3165-1.3500 range before testing its November low at $1.2969.
The Moody's report on Spain pushed Spanish bond yields ES10YT=RR higher. [GVD/EUR]
