* Uncertainty over Spanish bailout request unnerves market
* Violent protests in Madrid weigh on single currency
* Strong support for euro expected around $1.2826
By Nia Williams
LONDON, Sept 26 (Reuters) - The euro hit a two-week low against the dollar on Wednesday, dragged down by uncertainty over when Spain might request a bailout, and after anti-government protests in Madrid turned violent.
A Spanish request for external aid is a condition for the European Central Bank to start buying Spanish debt and Madrid’s apparent reluctance to seek help has dented demand for the euro in recent sessions.
Spanish Prime Minister Mariano Rajoy told the Wall Street Journal in an interview published on Wednesday that he was ready to seek a bailout if its debt financing costs stayed too high for too long.
The euro fell further after the Bank of Spain said gross domestic product kept falling at a “significant rate” in the third quarter of 2012.
It traded down 0.4 percent at $1.2848, its lowest since Sept. 12, having hit a four-month high of $1.31729 last week.
“The Spanish story does seem to be deteriorating. We are seeing Spanish bond yields pushing higher this morning and that’s being echoed by a slightly lower euro,” said Daragh Maher, currency strategist HSBC.
Protesters clashed with police in Madrid on Tuesday as the government prepared a new round of austerity measures for the 2013 budget, due on Thursday.
The unrest highlighted the challenges facing the euro zone’s fourth largest economy as it struggles to bring its debt under control, and pushed 10-year Spanish yields back towards 6 percent.
Strategists said profit-taking was also weighing on the single currency. The euro had rallied around 9 percent from a two-year low of $1.2042 hit in July, helped by the ECB bond-buying plan and a third round of monetary easing from the U.S. Federal Reserve that lifted perceived riskier currencies against the dollar.
“What we’re seeing is a reversal of some excessive moves that we saw earlier,” said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.
HSBC’s Maher said a break below $1.28, which acted as resistance as the euro rallied earlier this month, could open the door for further losses. The 200-day moving average at $1.2826 was also seen as strong support.
The risk of further unrest in Greece, where the coalition faced its first big anti-austerity strike since taking power in June, was also contributing to negative sentiment towards the euro.
The euro fell 0.6 percent to 99.71 yen, having retreated from a session high of 100.46 yen.
The single currency’s retreat helped lift the yen against the dollar. The greenback eased 0.2 percent to a near two-week 77.60 yen, not far from a seven-month low of 77.13 yen hit on Sept. 13, the day the Fed announced aggressive stimulus to promote economic recovery.
Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo said the dollar should be supported by hefty bids around the 77.50 yen level.
Traders said the yen could get a lift this week from Japanese fund repatriation before half-year book-closings, although some market participants said many companies had already covered their needs so such flows were unlikely to be significant.
The Australian dollar dipped 0.3 percent to US$1.0350, tracking the broader pull-back in investor appetite to take on risk.