FOREX-Euro falls as Greek borrowing costs surge

* Greek/German yield spreads widen beyond 500 points

* Greek starts talks with EU and IMF on aid

* Canada dollar at 22-mth high vs US dlr on rate outlook (Updates prices, adds comment, changes byline, changes dateline, previous LONDON)

By Wanfeng Zhou

NEW YORK, April 21 (Reuters) - The euro fell broadly on Wednesday as spreads between Greek and German bond yields hit a 12-year high, highlighting uncertainty about how Athens would resolve its debt crisis.

The euro fell for the fifth day versus the dollar to a near two-week low as the premium that investors demand to buy Greek government bonds rather than euro zone benchmark Bunds widened beyond 500 basis points. The cost of insuring against a Greek default climbed to a record high. See [ID:nLDE63K0ZH]

The surge in Greece's borrowing and default protection costs came as the country started talks with European Union and International Monetary Fund officials on an economic plan that could offer the euro zone member 40-45 billion euros to exit a debt crisis. A joint text will be agreed by May 15.

"The market is losing confidence in the prospect for Greece, which should weigh on the euro," said Camilla Sutton, senior currency strategist at Scotia Capital in Toronto. "The market is forcing Greece to ask for the aid."

Sutton expects the euro to decline to $1.32 by the end of the quarter.

In early New York trading, the euro dropped 0.5 percent to $1.3374, after having fallen more than half a percent on the day to $1.3359, according to Reuters data, its lowest since April 9.

Worries about Greece boosted the safe-haven appeal of the dollar. The ICE Futures U.S. dollar index, which tracks the greenback versus a basket of six currencies <.DXY>, recovered from the day's low to trade 0.2 percent higher at 81.185.

Against the yen , the dollar slipped 0.1 percent to 93.12.

The low-yielding Japanese currency benefited from an increase in risk aversion, recovering from broad losses as the Greek debt crisis took centre stage. Earlier in the day, it came under pressure as strong U.S. corporate earnings boosted risk appetite.

Apple Inc posted first quarter earnings on Tuesday that far exceeded expectations, while Goldman Sachs and Morgan Stanley also announced strong results.

CANADA DOLLAR SHINES

The Canadian dollar rallied across the board, pushing as high as C$0.9931 per U.S. dollar, its strongest since early June 2008.

The Canadian currency extended its rally from Tuesday after the Bank of Canada signaled an interest rate rise may come as early as June. Stronger commodity prices also provided a boost.

"The Canadian dollar is rallying after the BoC dropped its conditional commitment not to move on rates," said Adam Cole, global head of FX strategy at RBC Capital Markets.

"We have a near-term target versus the U.S. dollar of C$0.9800 and expect that to be reached pretty quickly," he said.

It was also on the cusp of an 18-month high against the yen , having risen about 11 percent against the Japanese currency since starting its rally in late February.

The Swedish crown hit a 19-month high against the euro of 9.5850 per euro, extending its rally after Sweden's central bank on Tuesday cemented market expectations for a rise in interest rates in July or September. (Additional reporting by Naomi Tajitsu and Neal Armstrong; Editing by Chizu Nomiyama)