FOREX-Euro falls on Greece worries; dollar slips vs yen

* Uncertainty over Greece, weaker euro zone GDP hit euro

* Greek banks ask govt for more financial support

* Dollar falls vs yen after Bernanke comments (Updates prices, adds details, comments)

By Wanfeng Zhou

NEW YORK, April 7 (Reuters) - The euro dropped against the dollar on Wednesday to its lowest in more than a week as concern over Greece's debt crisis pushed the yield spread between Greek and German government bonds to the widest since the euro's launch in 1999.

The Canadian dollar broke parity versus the greenback for a second day, while sterling fell earlier after weaker-than-expected data on the UK's dominant services sector.

The euro has come under pressure this week following reports that Greece wanted to renegotiate a deal reached last month over joint aid from the European Union and the International Monetary Fund. For more see [ID:nLDE63513Y].

Greece denied the report, but the market remained anxious on Wednesday as the premium that investors demand to hold 10-year Greek government bonds rather than euro zone benchmark German Bunds rose to 412 basis points.

"Everyone is still focused on the Greek bond yields. Certainly the Greek bond's weakness is calling into question whether there'll be a potential of a Greek default," said Dean Popplewell, chief currency strategist at OANDA in Toronto.

Sentiment was further dented by news that Greek banks have asked the government for more financial support, highlighting the problems facing the Greek economy, which is expected to contract by at least 2 percent this year. [ID:nLDE6360NB]

In afternoon New York trading, the euro was down 0.3 percent at $1.3365 after falling as low as $1.3327, according to Reuters data. It lost 0.7 percent to 124.74 yen .

Worries over debt problems in Greece and other peripheral euro zone countries have knocked the euro down almost 9 percent from its January high of $1.4582.

Traders said the next key euro/dollar downside support level is around $1.3270 and a break below that could see it fall toward $1.30.

Revised data showing euro zone growth stalled in the last quarter of 2009 also weighed on the euro zone single currency. [ID:nLDE6360KQ]

SIGNIFICANT HEADWINDS

The dollar hit as low as 93.30 yen, and was last down 0.5 percent at 93.32 yen as U.S. bond yields fell on strong demand for a $21 billion Treasury auction and after Federal Reserve Chairman Ben Bernanke said the U.S. economy still faces significant headwinds. [ID:nWEQ003857]

"Rather than acknowledge the improvements in the economy, (Bernanke) said there are 'daunting' economic challenges," said Kathy Lien, director of currency research at GFT in New York. It implies that he "is not optimistic enough about the outlook for the U.S. economy to raise interest rates."

The Australian dollar rose 0.1 percent to US$0.9284, after hitting a fresh 11-week high of US$0.9299 . The Reserve Bank of Australia on Tuesday raised its cash rate to 4.25 percent and flagged more hikes in the coming months.

The Canadian dollar rose as high as C$0.9977 versus the greenback, its highest intraday level since July 15, 2008. It was last at C$1.0037 per U.S. dollar.

Citigroup in a research note said Canadian economic indicators have "shown more strength relative to expectations than any other major country except for Switzerland," which has increasingly translated to rising interest rate expectations.

"With USD/CAD trading in line with moves in interest rate spreads, this points to a sustained move beneath parity."

Traders said the Canadian dollar could rise to C$0.98 per U.S. dollar, the bottom of the pair's range since 2008.

Sterling fell as low as $1.5140, before recouping losses to trade flat on the day at $1.5266. Britain's services purchasing managers index fell to 56.5 in March from 58.4 in February. Economists had forecast it to slip to 58.0. [ID:nLDE63611P] (Editing by Chizu Nomiyama )