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NEW YORK (Reuters) - The euro fell against the dollar on Thursday and touched a record low against the Australian dollar and a 3-1/2-year trough versus sterling, as weak U.S. data and fresh warnings from Germany about Spain's banking troubles diminished risk appetite.
A slew of soft U.S. economic data reinforced views that recovery in the world's largest economy has stalled, prompting investors to pare back positions in higher-yielding assets perceived as risky.
Riskier currencies such as the Australian and New Zealand dollars were still up on the day against the dollar and euro, but off their peaks.
Comments from German Finance Minister Wolfgang Schaeuble ahead of a German parliamentary vote on aid for Spanish banks did not help the common currency. Schaeuble said Spain's financial troubles are far from over and its government should be ultimately responsible for European aid to its banks.
He also said that the mere perception of insolvency risk in Spain could cause contagion in the euro zone.
"The Germans are being strict that the liability stays with the sovereign and all that does is exacerbate the debt burden of the sovereign and the market doesn't like that," said Boris Schlossberg, managing director at BK Asset Management in New York.
Losses in the euro, however, were capped by news that German Chancellor Angela Merkel ultimately won a parliamentary vote on the euro zone rescue package for Spanish banks despite growing unease in her centre-right coalition over the rising cost of Europe's debt crisis for German taxpayers.
"Obviously the U.S. numbers that came out were not too good, and we also had comments from Schaeuble that were not positive for the euro," said Tom Fitzpatrick, chief technical currency strategist at CitiFX in New York. "So the combination of the two prompted a bit of adjustment to the downside."
The euro hit session lows at $1.2227 in the wake of Schaeuble's comments and was last at $1.2270, down 0.1 percent on the day.
Spanish 10-year yields climbed back above 7 percent after Schaeuble's comments. Spain sold 3 billion euros in debt at a higher cost than previous auctions.
Analysts expect the euro to retest a two-year low hit last week because investors, discouraged by a lack of progress toward solving the euro-zone debt crisis, continue to shun the currency in favour of safer havens.
Data on Thursday showing a rise in U.S. jobless claims, an unexpected fall in U.S. existing home sales, and a worse-than-forecast contraction in the mid-Atlantic region's factory activity lent support to the dollar as a safe haven.
The positive impact on the dollar could fade, however, noted Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
The data "can be a source of medium-term weakness for the dollar as investors increase bets the Fed will act to shore up a listless recovery," Manimbo said.
Another round of quantitative easing by the Federal Reserve would hurt the greenback because bond-buying by the Fed effectively floods the financial system with dollars, reducing the currency's value.
The euro also fell 0.4 percent against the yen to 96.42 yen and hit a record low against the higher-yielding Australian dollar as well as hitting a 3-1/2-year low against the UK pound.
The euro zone's common currency also hit a record low versus the New Zealand dollar.
The Australian dollar rose broadly, hitting a 2-1/2-month high against the U.S. dollar of A$1.0445. Traders cited demand from Australian companies to buy the currency as well as talk of central banks looking to diversify their holdings into Australian assets.
TD Securities in a note said falling volatility has spawned carry trades, in which investors borrow in lower-yielding currencies to buy assets with higher returns, at the expense of the euro and the dollar.
Since the start of the year, TD said, EUR/AUD shorts have produced total returns of more than 9 percent, EUR/NZD shorts nearly 10 percent, while EUR/CAD shorts have yielded returns of just under 7 percent.
The U.S. dollar fell to a six-week low against the yen of 78.42 yen, with investors preferring the Japanese currency due to the chance of more U.S. monetary easing. It last traded at 78.57 yen, down 0.3 percent on the day.
Reporting by Nick Olivari and Gertrude Chavez-Dreyfuss; Editing by Leslie Adler