(Adds details, fresh quote, updates levels)
* Euro extends losses, hits lifetime low vs Swiss franc
* EUR/USD hits 4-mth low, safe-haven yen climbs broadly
* Jump in Italy, Spain yields prompts exodus from risky FX
By Anirban Nag and Naomi Tajitsu
LONDON, July 12 (Reuters) - The euro fell to a record low against the Swiss franc on Tuesday as euro zone government bond yields jumped on deepening concerns that the region's debt crisis would spread, prompting investors to dump the single currency for safer ones.
The euro plunged 1 percent on the day to 1.1555 francs on electronic platform EBS. Against the dollar, it hit a four-month trough of $1.3837, with investors in the options market pricing in more downside risks for the common currency in coming days.
Mounting worries about the euro zone's ability to stem contagion risk drove hedge funds and other investors to the relative safety of the dollar, franc and yen, while high-yielding currencies including the Australian and New Zealand dollars took a hit.
Confidence is fast dwindling in the European Union's ability to prevent debt problems in Greece, Ireland and Portugal from spreading to Spain and Italy, where bond yields have surged in recent sessions.
"Italy has moved very, very quickly to catch up with Spanish yields, and the market has woken up to the fact that there's a much larger problem. That's what precipitated the large fall (in the euro)," said Adam Myers, senior FX strategist at Credit Agricole CIB.
He said concerns about whether Italy can undertake budget reforms had changed the market's previous perception that Rome was sheltered from the debt crisis.
Many in the market said the selloff in the euro seen this week marks a turning point in the currency market, where investors have finally acknowledged that stronger countries are not immune to the region's fiscal problems.
"I very much doubt the ECB, let alone the IMF, can bail out a country the size of Italy," Myers said.
Analysts said the euro would continue to take a beating as yields rise in the wake of an emergency meeting by European financial officials on Monday, which failed to agree fresh action to tackle the region's debt problems.
A euro zone diplomat said on Tuesday that EU leaders would hold an additional summit on Friday the discuss the debt crisis.
The euro was hammered lower after a jump in benchmark 10-year Spanish and Italian bond yields expanded their spreads against safe-haven German debt to their widest since the mid-1990s. . As borrowing costs rise, the repayment of debt becomes more costly to maintain and could lead to an economic slowdown and more losses for banks.
The euro was last trading at $1.3911, pulling away from lows on Asian sovereign demand and supported by results from an Italian bond auction where Rome was able to sell one-year paper, albeit at much higher yields.
The euro clawed back above $1.3906, its 200-day moving average which was seen as a key support level. Having broken below that level in earlier trade, a daily close below would signal more losses. Traders cited option expiries at $1.3900.
EURO VOLATILITIES JUMP
The euro has already shed more than 4 percent against the dollar this month, and market participants in London said there was a sense of panic on the trading floor.
The latest selloff has contributed to a spike higher in market volatility, pushing one-month euro/dollar implied vol to around 15 percent , its highest since November 2010.
The premium on euro puts -- the option to sell the currency -- also jumped, with one-month 25-delta risk reversals hitting 3.3 vols in favour of puts, the highest in roughly a year.
Analysts said appetite for downside strikes in euro/dollar was intensifying.
"Option investors were already holding puts given risk-reversal levels, and very quickly everyone can be long vol and short spot," said Olivier Korber, strategist at Societe Generale. "For vols to go higher, we need new sellers, and they are less and less present."
The selloff in risky currencies boosted the dollar by almost 1 percent versus a currency basket to 76.719, its highest in four months. It eased to 76.386 later in the session.
The franc and the yen also rallied, with the Swiss currency hovering around historic highs against sterling, while broad yen strength pushed the dollar down roughly 1 percent on the day to 79.17 yen , its weakest since mid-March. It was last trading at 79.64 yen, still down 0.7 percent on the day.
The Australian dollar fell 1 percent versus its U.S. counterpart, while the New Zealand currency fell 2 percent. Closely linked to commodity prices and seen as a barometer of risk demand, these currencies reversed gains made in previous sessions.
(Editing by Susan Fenton)