* Euro hits lowest since early October versus dollar
* Italian yields soar after weak auction
* Safe-haven flows buoy dollar; Swiss franc tumbles
(Updates prices, adds comment, details)
By Wanfeng Zhou
NEW YORK, Nov 25 The euro fell to its lowest in
more than seven weeks against the U.S. dollar on Friday and was
set to weaken further as a disappointing Italian auction stoked
fears the euro zone crisis was deepening.
Italy paid a record 6.5 percent to borrow money over six
months on Friday and its longer-term funding costs soared far
above levels that are seen as sustainable. The rise in
borrowing costs came even as the European Central Bank bought
bonds in the secondary market.
Signs the euro zone debt crisis was threatening the
region's biggest economies such as France and Germany have
raised fears of a breakup of the currency bloc. Policymakers
remained in disagreement over how to resolve the crisis, with
Germany opposed to joint euro zone bonds and a bigger role for
"Confidence in the region diminishes while the outlook for
a solution to the crisis seems as far away as it has ever
been," said Brendan McGrath, senior analyst at Western Union
Business Solutions in Victoria, British Columbia.
The euro EUR= fell 0.7 percent to $1.3255, having dropped
as low as $1.3210, based on Reuters data, its lowest since Oct.
Key support lies around $1.3144, the euro's October low,
followed by $1.3045, the 61.8 percent retracement of its
The euro has lost about 1.8 percent this week, on track for
a fourth straight week of losses. It came under heavy pressure
after lackluster demand at a German bond auction on Wednesday.
Italy's two-year yield rose to a euro-era high above 8
percent and 10-year yields traded above 7 percent, a level that
is seen as unsustainable. IT2YT=TWEBIT10YT=TWEB Belgian
bonds were also under pressure ahead of auctions next week.
Strains in the money market added to investor concerns. The
euro/dollar one-year cross currency basis swap EURCBS1Y=ICAP,
which widens when lenders charge more for swapping euro
interest payments on an underlying asset into dollars, was at
minus 104 basis points -- close to expensive levels of minus
115 bps in late 2008.
SWISS FRANC TUMBLES
The dollar rose as high as 79.702 versus a currency basket
.DXY, the highest since early October, as investors sought
the liquidity and perceived safety of the U.S. currency.
"Unless we see firm action from European authorities, the
market is betting the worst is about to happen and the dollar
is therefore well bid on demand for liquidity," said Jane
Foley, currency strategist at Rabobank.
Against the yen, the dollar rose 0.8 percent to 77.67
JPY= after hitting a two-week high of 77.73, according to
The euro hit a seven-week low of 102.46 yen EURJPY= based
on Reuters data, before rebounding to 102.86, flat on the day.
The Swiss franc tumbled against the dollar and euro on
speculation the Swiss National Bank may raise the ceiling on
euro/Swiss franc from the current 1.20 level.
The dollar rose to 0.9330 Swiss franc CHF=, a near
8-month high and last traded up 1 percent at 0.92890. It was on
track for a gain of 1.3 percent this week, its fourth straight
The euro rose 0.3 percent to 1.2306 francs EURCHF=, after
hitting a session high of 1.2380.
(Additional reporting by Richard Leong in New York and Neal
Armstrong in London; editing by Editing by Andrew Hay )