* Euro ministers fail to agree on Greek debt solution
* Moody's warns French banks, units of Portuguese banks
* Analysts expect euro to fall toward key $1.40 level (Adds comment, details, byline, updates prices)
By Wanfeng Zhou
NEW YORK, June 15 (Reuters) - The euro tumbled to a 2-1/2-week low against the dollar on Wednesday, heading for its worst day in more than a month as investors fretted about the lack of resolution of Greece's debt crisis and the effect a default could have on European banks.
Euro zone ministers failed on Tuesday to reach agreement on how private holders of Greek debt should share the costs of a new bailout. Uncertainty over a second rescue for Athens and fears of contagion pushed the bond yields of Greece, Ireland and Portugal to euro lifetime highs.
Adding to investor unease, Moody's threatened large French banks with possible downgrades. The ratings agency also said it was reviewing ratings of subsidiaries of some Portuguese banks for possible downgrades.
"The market is really caught in a tailspin at the moment," said Dean Popplewell, chief currency strategist at OANDA in Toronto. "Nobody seems to be in control. It really is down to the finance ministers and the European Central Bank coming to some sort of solution and they seem to be so far apart at the moment."
Senior EU officials said a deal was unlikely to be reached at a summit next week and was likely to be delayed until mid-July.
The euro fell as low as $1.4154
Technical traders said the euro is set to extend declines toward $1.40, with little strong support seen before that key psychological level.
George Davis, senior currency strategist at RBC Capital Markets in Toronto, said the euro/dollar's trendline drawn off the lows from the start of the year and the lows hit last month comes in at $1.4167.
"That's been guiding the euro higher throughout 2011, so if we're able to close below that, it would be a very bearish development," he said. "People will abandon the buy-on-dips mentality and start to sell the euro on rallies."
The euro also fell 0.9 percent against the safe-haven Swiss
franc to 1.2089 francs
Graphic on bank exposure to euro zone periphery debt:
http://r.reuters.com/max89r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
DOLLAR BROADLY STRONGER
Greek Prime Minister George Papandreou said on Wednesday he will form a new government on Thursday and seek a vote of confidence from his parliamentary group.
Earlier in the day, tens of thousands of protesters marched on parliament to oppose his austerity plans. Unions representing half the 5-million-strong work force also launched a nationwide strike. See [ID:nLDE75E041]
In the options market, risk reversals showed increasing
demand for bets on a lower euro against the dollar. The 25
delta one-month euro/dollar risk reversal
"Our option desk is seeing a continuation of the large-scale euro put buying they witnessed yesterday, principally in the one-month and two-month area, with $1.40 strikes proving very popular," said a trader at a U.S. bank in London.
Worries about Greece prompted investors to flock to the safe-haven U.S. dollar. The dollar index <.DXY>, which tracks its performance against a basket of currencies, was up 1.6 percent at 75.541, posting its biggest one-day rise since August 2010.
However, concerns over the failure so far of lawmakers and officials to lift the U.S. debt ceiling are expected to limit dollar gains.
The dollar was up 0.6 percent at 80.87 yen