FOREX-Euro hovers near 3-week low on peripheral worries

* Euro retreats to near $1.4250 in volatile trade

* Greek debt worries continue to cloud outlook

* Aussie dollar gains as commodity prices rebound (Updates prices, adds comment, adds byline)

By Wanfeng Zhou

NEW YORK, May 9 (Reuters) - The euro hovered near a three-week low against the U.S. dollar on Monday, with renewed worries about the euro zone's heavily indebted economies suggesting more losses could be in store for the single currency.

Standard and Poor's cut Greece's rating to B from BB-, dragging it further into junk territory on concerns a debt restructuring is increasingly likely. Moody's threatened to cut Athen's ratings by several notches. For details, see [ID:nLDE7480MK]

Any changes to Greece's debt structure are likely to prompt a call for more favorable terms from other nations who are struggling under heavy debt burdens and receiving financial aid, adding to fears about the euro zone economy.

The euro dropped to a low near $1.4250, about 7 cents below its recent 17-month high around $1.4940 reached last Wednesday. While it remains too early to tell if the euro is back on a downward trend, the speed of the latest correction suggests the currency could remain under pressure in the coming days.

"The euro is very much in a reversal at the moment," said Dean Popplewell, chief currency strategist at OANDA in Toronto. "We should have seen some sort of bounce over the last 36 hours. We haven't seen that. All we are seeing is renewed selling pressure on any euro rallies."

The euro fell as low as $1.4254 on trading platform EBS , the lowest since April 19, breaking through technical support at its 50-day moving average of $1.4279. It later recovered slightly to trade at $1.4333, up 0.2 percent on the day.

Technical analysts said a sustained break of the 50-day simple moving average could see broader correction lower towards $1.4020/30, followed by $1.3950.

The euro volatility "confirms the whole market skittishness about the viability of the peripheral economies," said Boris Schlossberg, head of research at GFT Forex. "More draconian measures will be necessary to stabilize the situation with a broader solution as Ireland and Portugal will want more favorable terms if Greece gets them."

The euro started a sell-off last week after panic selling in the commodities market prompted investors to shun risk. Its losses accelerated on Friday after a German news report, which was later denied, suggested Greece had raised the possibility of leaving the euro zone.

Jean-Claude Juncker, head of the group of euro zone finance ministers, late on Friday dismissed a report in Germany's Spiegel Online magazine that Greece could withdraw from the 17-member euro zone.

While few market players think Greece is likely to drop out of the euro, the European Union is under pressure to renegotiate its financial bailouts of Ireland and Greece with an Irish minister saying any concessions given to Athens should mean better terms for Dublin as well. [ID:nLDE7470E8]

"The Greek situation is like a slow motion car crash. The politicians know they have to dip into the pockets to find a solution to the problems facing Greece," said Jeremy Stretch head of currency strategy at CIBC World Markets in London.

The euro was down 0.2 percent against the yen at 115.16 yen after earlier falling to its lowest since late March.

The dollar lost 0.3 percent against the yen to 80.36 yen , off last week's seven-week low.

Commodity currencies were supported by a rebound in oil prices, after a plunge in oil, silver and other commodities last week.

The Australian dollar rose 0.8 percent to $1.0767 , extending gains on Friday after the Australian central bank said rate hikes would be needed in future to contain inflation. (Additional reporting by Nick Olivari; Editing by Chizu Nomiyama)