* Euro slumps to four-year low against the dollar
* ECB's Nowotny says euro in "normal range"
* Investors worry austerity plans will weaken growth
(Recasts, updates prices, adds detail)
NEW YORK, May 17 (Reuters) - The euro fell against the dollar on Monday, at one point slipping to a four-year low, on persistent fears euro zone austerity measures will cause a downturn in the region and stifle global growth.
The euro earlier climbed into positive territory against the dollar after a U.S. report showed strong demand for U.S. long-term securities. The report sparked a rise in risk appetite and a flurry of short covering by investors who had bet the currency would fall further. But that did not last through the New York morning.
"Fiscal and economic concerns are likely to weigh on the euro for the foreseeable future, though we might get short squeezes along the way," said Stuart Bennett, currency analyst at Credit Agricole CIB in London.
Midway through the New York trading session, the euro
The euro has fallen more than 7 percent against the dollar this month, and is about 14 percent lower for the year, making it the worst-performing major currency.
European Central Bank policymaker Ewald Nowotny said the fall in the currency was not a cause for concern, adding the exchange rate was in a "normal range" and there was no reason for hysteria about it. [ID:nDEK002037]
The ECB on Monday bought 16.5 billion euros worth of bonds in the first week of its government debt buying program to help resolve the euro zone's debt crisis. [ID:nLDE64G1O9].
Technical analysts said the next key support was at $1.2135, the 50 percent retracement of the rally from the all-time lows near $0.82 to the record highs just above $1.60.
Analysts said widening euro zone problems had prompted a money market dollar liquidity shortage.
"If the sharp deterioration in money markets persists into this week, look for central bank action to lower the cost of access to their dollar funding facilities," Citibank analysts said in a note.
The euro had extended its losses in Asia after falling below the post-Lehman October 2008 low around $1.2330, where traders said stop-losses from model accounts were lurking, and fell as far as $1.2234 on trading platform EBS, its lowest since April 2006.
The euro high on EBS was $1.2415 after the Treasury Department report showed foreign investors set a record for purchases of long-term U.S. securities in March, snapping up $140.5 billion and shattering a previous peak seen in 2007 [ID:nnN17261988].
The report prompted a rise in risk appetite and investors who had borrowed euros and sold them on expectations of future declines were forced to buy the single currency to prevent losses.
But investor fear returned as the New York progressed. A 750 billion euro rescue package from the European Union and the International Monetary Fund aimed at shoring up euro zone bond markets has done little to underpin the euro.
On Friday, the single currency euro plunged after European Central Bank policymaker Axel Weber said it was important not to underestimate lingering dangers to financial stability. [ID:nLAG006286].
German Chancellor Angela Merkel on Sunday said the rescue plan had only bought time to sort out the yawning gap between the euro zone's strongest and weakest economies. [ID:nLDE64F0FQ].
Traders say the austerity measures announced by Greece, Spain and Portugal could hurt growth in the near term and force the European Central Bank to keep interest rates low. "There is a rapidly growing consensus that (the euro) could fall to parity with the dollar," said Ed Yardeni, president & chief investment strategist at Yardeni Research.
Data released on Friday showed speculative bets against the euro hit a record high in the week to May 11. [ID:nN14193796].
Against the yen, the euro traded down 0.6 percent at 113.67
yen after falling to 112.47
Sterling slid to its lowest since March 2009 at $1.4249