* Euro falls, erasing earlier gains as Spain worries grow
* Spain's Montoro says financial markets closing to Spain
* Market awaits any clues from G7 conference call (Adds details, adds quotes, updates prices, changes dateline, previous LONDON)
NEW YORK, June 5 (Reuters) - The euro fell on Tuesday as Spain's Treasury minister said high borrowing costs meant credit markets were closing to Spain, though losses were capped as investors waited for any comments from an emergency conference call of Group of Seven finance chiefs.
The G7 ministers and central bankers were set to discuss the euro zone's worsening debt crisis, although the chances of a significant breakthrough looked slim.
"Everyone is looking for some clarity from the G7 teleconference today and I am afraid they are unlikely to get it," said Brad Bechtel, managing director at Faros Trading in Stamford, Connecticut. "The best we can hope for is some announcement of global coordinated stimulus."
But Bechtel emphasized it was unlikely this would be the platform for any major G7 announcement on managing the crisis.
The G7 talks had boosted the euro earlier but it fell after Spain's Treasury minister Cristobal Montoro highlighted the funding problems facing Spain as investors worried that the country may have to seek external aid.
The euro fell 0.5 percent on the day to a session low of $1.2409, more than a cent below an earlier one-week high.
On Friday, it hit a two-year low of $1.2286, using Reuters data.
"People will be happy to sell into moves above $1.25," said Anders Soderberg, currency strategist at SEB in Stockholm.
The euro has recovered since weak U.S. jobs data on Friday weighed on the dollar, feeding speculation about the prospect of another bout of monetary easing in the United States. But Soderberg said this was merely "a short-term break in what now seems to be a well-established downtrend".
Investors also are worried about the risk that a Greek election in two weeks could push Athens out of the euro.
The depths of the problems facing the euro zone were underlined by a purchasing managers' survey showing the euro zone's private sector economy shrank at the fastest pace in nearly three years in May. Euro zone retail sales and German industrial orders were also worse than forecast.
It also erased thew euro's earlier gains against the yen and was last down 0.7 percent on the day at 97.24 yen. This still left it comfortably above Friday's low of 95.57 yen, using Reuters data, the lowest since December 2000.
Against sterling, the euro fell 0.4 percent to 80.93 pence , off an earlier one-month high of 81.41 pence.
The G7 talks prompted some market players to speculate that the European Central Bank could opt for some form of further monetary stimulus when it meets on Wednesday.
International Monetary Fund Managing Director Christine Lagarde said in an interview with a Swedish newspaper that the ECB had room for another interest rate cut.
There has been some talk of a cut, although a recent Reuters poll showed only 11 out of 73 analysts polled expected a move this month.
In a sign of increasing concern about the impact of the euro zone debt crisis, the Reserve Bank of Australia cut interest rates by 25 basis points on Tuesday.
The Australian dollar was down 0.1 percent at $0.9720 , having risen earlier as the rate cut was less than the 50 basis points some had expected.
Traders will also be looking ahead to testimony by U.S. Federal Reserve Chairman Ben Bernanke on Thursday for any hints on the possibility of more quantitative easing.
The dollar was down 0.1 percent at 78.25 yen, taking it closer to Friday's 3 1/2-month low of 77.65 yen, using Reuters data, though market players expressed wariness about the possibility of Japanese authorities stepping in to stem the yen's rise. (Reporting By Nick Olivari; Editing by Theodore d'Afflisio)