* Euro falls after Moody's says it may cut Spain's rating
* Euro debt worries lift Swiss franc to record vs euro
* Options investors continue to buy dollar calls (Updates prices, adds quote)
NEW YORK, Dec 15 (Reuters) - The euro fell on Wednesday after Moody's said it may downgrade Spain's debt rating, but losses were contained as investors await more developments about how policymakers will resolve the region's fiscal crisis.
Analysts said the Moody's news, while clearly negative for the euro, did not add anything new to the debate on the euro zone's financial woes.
The dollar rose, bolstered by U.S. data showing a steady recovery in New York state's manufacturing sector. A somewhat soft U.S. consumer price index, while supportive of the Federal Reserve's quantitative easing and dollar-negative, did not alter the view that the economy is growing modestly.
That left investors focusing more on contagion risks from the euro zone debt crisis. The Moody's report, saying the ratings agency placed Spain's Aa1 ratings on review for a possible downgrade, was a reminder that fiscal problems in Europe are far from over. For details, see [ID:nL3E6NF0D8]
"Going forward, we certainly think the pressure on the euro will be lower. Sharp declines in the currency would be event-dependent," said Aroop Chatterjee, chief FX quant strategist at Barclays Capital in New York.
"But the potential for sharp declines is higher than for any meaningful appreciation," Chatterjee said.
The increase in the pace of European Central Bank buying of peripheral bonds helped stabilize the euro recently, but Chatterjee said the additional purchases were not enough.
Overall, the Barclays team expects the euro to fall to $1.28 over the next three months, before recovering.
In midafternoon New York trading, the euro was down 0.9
percent against the dollar at $1.3259
Traders said the euro's bias was neutral, although a push higher is a possibility as long as the $1.3164 support -- the Dec. 9 low on trading platform EBS -- holds. On the other hand, a break above $1.3496 will cement the case that the fall from $1.4283 -- the November high -- is complete.
The euro edged 0.2 percent lower against the Swiss franc to
1.2812 francs
The franc gained as worries about debt problems in some European countries encouraged investors to reduce exposure to riskier euro zone assets and seek safer alternatives.
Contributing to the euro's fall, the dollar firmed after mostly upbeat economic data lifted U.S. bond yields, enhancing the appeal of some dollar-denominated assets. [ID:N15127066]
The 10-year U.S. Treasury yield hit a seven-month high just
above 3.50 percent in Asian trade, helped by above-forecast
U.S. retail sales data. [ID:nN14261708] In New York trade,
10-year yields edged lower from that high to 3.48 percent.
For a FX column on U.S. yields and the dollar, click
[ID:nLDE6BD0Z3]
"The (U.S.) data doesn't really change expectations that the economy is improving gradually and because it hasn't really surprised in either direction, it ... allows the market to revert back to what it's most comfortable with," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
EU heads of state and government meet on Thursday and Friday to discuss the region's spreading debt crisis, but expectations of meaningful progress are low.
The dollar also gained 0.7 percent against the Japanese yen
to 84.23 yen
In the options market, traders cited strong buying of U.S. dollar calls -- a bet of further currency appreciation -- against the yen, sterling, and euro. (Additional reporting by Wanfeng Zhou; Reporting by Nick Olivari and Gertrude Chavez-Dreyfuss; Editing by Dan Grebler)