* Swiss franc up on safe-haven bid on Middle East tension
* U.S. data weighed, seen boosting risk-taking
* Spain sells debt, but banking worries remain
(Updates prices, adds details)
By Gertrude Chavez-Dreyfuss
New York, Feb 17 (Reuters) - The safe-haven Swiss franc gained broadly on Thursday, lifted by Middle East tensions, while the dollar struggled, partly pressured by the decline in U.S. Treasury yields and technical factors.
The franc, traditionally sought during periods of geopolitical tension, will likely remain firm against other currencies if events in the Middle East escalate. The dollar, on the other hand, may continue to weaken, as investors consolidate recent gains racked up against the yen and euro.
Popular unrest in Bahrain, Libya and Yemen as well as concerns about Iranian warships transiting the Suez Canal have fostered uncertainty among international investors in recent days. For details, see
"The outperformance of the Swiss franc seems to reflect safe-haven flows owing to Middle East/North Africa tensions," said David Watt, senior fixed-income and currency strategist at RBC Capital Markets in Toronto.
In late afternoon trading, the euro was down 0.7 percent at 1.2917 francs, while the dollar was down 1.0 percent at 0.9493 francs. The franc has gained 1.8 percent against the dollar so far this year, but slipped 0.6 percent this month.
Key technical support for the euro/Swiss franc pair was broken at 1.3005, the 21-day moving average and base of the Bollinger band. Technicians target 1.2815 as the next bear objective and see 1.2896 as support.
This is the 38.2 percent retracement of the rally from 1.2398 record lows to the 1.3205 high from last Friday. Strong support should emerge around this region, an analyst said.
Euro/Swiss franc one-month volatilities fell on Thursday, although risk reversals continued to move in favor of Swiss franc calls, with the one-month 25-delta around 1.40 compared to a neutral bias at the start of the year.
The ICE Futures' dollar index, meanwhile, fell 0.3 percent to 77.974, trading below key resistance at 78.701, the index's 100-day moving average.
Camilla Sutton, chief currency strategist at Scotia Capital in Toronto, said the dollar index did get above the 100-day moving average this week but failed to hold above that, and its failure suggested that the dollar's bias is downward.
The currency market also kept an eye on U.S. Treasury yields, which fell on Thursday as bonds got a bid on Middle East concerns. Two-year Treasury yields tumbled below 0.8 percent and are again near the Feb 7 level 0.765 percent. Ten-year Treasury yields were also down, but remain above support from mid-December at 3.534 percent.
Treasury yields have been on an uptrend in recent sessions amid higher inflation expectations, lending support to the greenback. On Thursday, that dynamic was not present.
A myriad of U.S. economic data, meanwhile, weighed on financial market sentiment. The Philadelphia Federal Reserve said U.S. Mid-Atlantic business activity improved sharply in February. U.S. inflation and weekly claims for jobless benefits came in higher than expected.
The euro was last up 0.2 percent at $1.3605.
Spain and France sold a combined 11.87 billion euros of debt at auctions, which analysts said fared well, with a longer-dated Spanish bond notably attracting good bids as it looked cheap on the Spanish curve.
The Spanish auction helped pull the euro off a session low versus the dollar, though the fragility of the euro-zone banking sector was highlighted by a jump in emergency overnight borrowing at the European Central Bank.
The dollar fell against the yen for a second straight day and was last trading at 83.33 yen, down 0.4 percent, but has gained 1.5 percent so far this month.