* Dollar boosted as risk sentiment worsens
* Euro falls to lowest since July 2017
* Yen seen drawing safe-haven bids
* Turkish lira marks record low, rouble also slumps (Adds quotes, context, updates prices)
By Tom Finn
LONDON, Aug 10 (Reuters) - The euro sank to its lowest levels in more than a year on Friday after a report that the European Central Bank (ECB) was growing concerned about the exposure of banks to a dramatic slide in the Turkish lira.
The plummeting lira, caused by a deepening rift with the United States and worries about Turkey’s economy has sent ripples across markets. Investors jumped into the safe-haven dollar, yen, and Swiss franc and sold emerging market currencies.
The euro was hit hard after the Financial Times reported on Friday, citing two sources, that the ECB had concerns about banks in Spain, Italy and France and their exposure to Turkey’s woes.
Traders said that had pulled the euro down against the dollar and other currencies including the Swiss franc.
The Turkish lira’s slump has bred concern about investor exposure to Turkey and in particular whether overleveraged companies would be able to pay back hard currency loans after years of borrowing in euro and dollars.
“Markets are waiting for a Turkish response to the FX crisis, and hoping for more credible monetary policy as well as diplomatic overtures,” said Societe Generale strategist Kit Juckes.
“The longer the market waits, the more contagious the crisis can be, not just to emerging market assets but to developed market ones. The Swiss franc, yen, and dollar are the only ‘safe’ currencies in the very short term,” he said.
The euro fell 0.6 percent to $1.1432, its weakest since July 2017. Against the yen, the euro slid 1 percent to 126.79 yen, a two-month low.
“We now have the first signs of the EUR/USD rate plunging through key support on fears over the impact of the turmoil in Turkey on the European banking sector,” said analysts at MUFG.
The euro is down almost 1 percent for the week, partly because of investor concerns that Italy is heading for a costly and unsustainable spending spree.
The dollar jumped to a 13-month high against a basket of currencies, climbing more than 0.6 percent to 96.172. The Japanese yen and Swiss franc rose.
The flight from risky assets heaped pressure on commodity-linked currencies including the Australian dollar, which fell one percent to $0.7280, an 18-month low.
“Risk aversion is taking control again, putting pressure on emerging market currencies while letting the safe haven dollar and the Swiss franc appreciate,” said Antje Praefcke, a currency strategist at Commerzbank in Frankfurt.
Global foreign exchange markets this summer have been dominated by political angst, from U.S. sanctions on Russia and Turkey, to rising tensions in the Middle East and in Europe.
The rouble retreated overnight to its lowest since November 2016, weakening beyond the psychologically important 65-per-dollar threshold.
Russia said on Friday it would consider it an economic war if the United States imposed a ban on banks or a particular currency.
The British pound continued to slide. It has fallen this week as investors increase bets on a “hard” Brexit.
U.S. consumer price inflation data for July due on Friday is expected to show inflation increased 0.2 percent, after rising 0.1 percent in June. (Editing by Matthew Mpoke Bigg)