* Contagion fears send euro to 14-month low vs dollar
* Germany warns euro debt crisis must stop at Greece
* Dollar rises broadly as investors buy as safe haven
* US private sector adds jobs in April (Updates prices, adds detail, US data, comments)
By Steven C. Johnson
NEW YORK, May 5 (Reuters) - Fear that a euro-zone debt crisis may spread beyond Greece sent the euro tumbling below $1.29 for the first time in more than a year and rattled bond markets in Portugal and Spain as investors snapped up dollars.
The euro plunged to $1.2805, its lowest level since March 2009, as German Chancellor Angela Merkel warned of contagion if a 110 billion euro ($146.5 billion) Greece rescue does not succeed.
"We're at a fork in the road," she told German lawmakers. "This is about nothing less than the future of Europe -- and with it, the future of Germany in Europe."
Kenneth Broux, market economist at Lloyds Banking Group in London, said traders are gunning for $1.25 as "the next big level on the downside."
The euro was last at $1.2855, down 0.9 percent. Over the last three days, it has lost 3.5 percent against the dollar, its worst performance since shedding 3.9 percent over a three-day period in January 2009.
"It's tough to see a bottom," said Joe Manimbo, a trader at Travelex Global Business Payments in Washington. "There are deep-seated concerns about the situation in Greece and overall fiscal health in Europe."
The euro also fell 1.4 percent to 121.09 yen and hit its lowest level against sterling since August. The dollar fell 0.4 percent to 94.25 yen but rose sharply against nearly everything else, hitting one-year highs against the Swiss franc and a basket of currencies.
EYES ON IBERIA
Anxious investors also cut exposure to European stocks and drove up the cost of insuring Greek, Spanish and Portuguese debt against default, while taking refuge in the dollar.
While not in as parlous a bind as Greece, both Spain and Portugal have high budget deficits and have become targets of speculators who consider them the next weakest links in the 16-country euro zone.
Moody's said Wednesday it put Portugal's credit rating on review for a possible downgrade, and yields on short-dated Portuguese debt soared.
"Contagion fears are driving the market and add to pressure on the euro, as does the ongoing civil unrest in Greece that may make it hard to institute reforms," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey.
US ECONOMY ON THE MEND?
The dollar got an added boost after data showed U.S. private employers added 32,000 jobs last month, bolstering the view that U.S. interest rates will likely rise from record lows well before rates in the euro zone.
But analysts said the data was really just an added incentive for investors to do what they've been doing for weeks: buy dollars.
"The dollar is the safe haven of first choice." said BNY Mellon currency strategist Michael Woolfolk. "This is a market that is looking for any excuse to sell the euro. Good news out of the U.S. or bad news out of Europe, take your pick."
Analysts said the market is starting to speculate the European Central Bank could announce plans to buy euro zone government debt at a meeting on Thursday to relieve pressure on countries hit by contagion fears.
Unnamed sources said the central bank remained reluctant to make the move, Market News International reported.
"You can't rule out the possibility the ECB could institute new measures, and that would amount to monetary easing, which is not good for the euro," Dolan said.