FOREX-Euro hits more than one-week low on Greece worries

* Uncertainty over Greece hits jittery euro

* Greek banks ask govt for more financial support

* Sterling falls on below-forecast UK services data (Updates prices, adds comment, changes byline, changes dateline, previous LONDON)

By Wanfeng Zhou

NEW YORK, April 7 (Reuters) - The euro dropped against the dollar on Wednesday to its lowest in more than a week on renewed concerns over Greece's ability to tackle its debt crisis.

Sterling fell after weaker-than-expected data on the UK's dominant services sector, while the Australian dollar stayed near an 11-week high on expectations of higher interest rates.

The euro has come under pressure this week following reports that Greece wanted to renegotiate a deal reached last month over joint aid from the EU and International Monetary Fund. [ID:nLDE63513Y]

Greece denied the report, but the market remained anxious on Wednesday as the yield spread between Greek and German government bonds reached the widest since the euro's launch.

"The euro is underperforming. As long as these issues of confidence remain in the market, the euro will have no ability to rally," said Sacha Tihanyi, currency strategist at Scotia Capital in Toronto. "Definitely the risk is to the downside still."

Sentiment was further dented by news that Greek banks have asked the government for more financial support, highlighting the problems facing the entire Greek economy, which is expected to contract by at least 2 percent this year. [ID:nLDE6360NB]

In early New York trading, the euro was down 0.4 percent at $1.3337, after falling as low as $1.3327, according to Reuters data. It lost 0.5 percent to 124.96 yen .

Revised data showing euro zone growth stalled in the last quarter of 2009 also weighed on the single currency. [ID:nLDE6360KQ]

"The GDP data, even though it is backward-looking, shows the euro zone is in a difficult situation. The outlook is negative overall for the euro," said Antje Praefcke, currency strategist at Commerzbank.

Worries over debt problems in Greece and other peripheral euro zone countries have knocked the single currency down almost 9 percent from its January high of $1.4582.

AUSSIE BUOYED

The Australian dollar traded at US$0.9265, down 0.2 percent on the day but still near an 11-week high of US$0.9289 set on Tuesday after the Reserve Bank of Australia raised its cash rate to 4.25 percent and flagged more hikes in the coming months.

"The Aussie is being helped by the RBA rate outlook versus the low rate projection coming from the (Federal Reserve)," said Stuart Bennett, senior FX strategist at Credit Agricole.

The Federal Reserve said subdued inflation trends were likely to warrant an exceptionally low federal funds rate for an extended period. [ID:nN06235181].

The Aussie topped 87.50 yen after breaching its 200-week moving average at 87.06 yen but pulled back later after nearing resistance at 87.70, a 61.8 percent retracement of its fall in 2007 from above 107.80 to 55.11 in late 2008.

The dollar traded flat versus the yen at 93.73 .

The Bank of Japan said after keeping its monetary policy unchanged that the economy was picking up, but analysts say prolonged deflation is likely to keep the government pressing the bank for more monetary easing. [ID:nTOE635025]

Sterling last traded 0.6 percent lower at $1.5181. UK's services purchasing managers' index fell to 56.5 in March from 58.4 in February. Economists had forecast a much smaller drop to 58.0. See more, [ID:nLDE63611P] (Additional reporting by Neal Armstrong; Editing by Chizu Nomiyama)