(Reuters) - The euro hit an all-time low versus the Swiss franc and an 8-1/2-year trough against the yen on Tuesday as anxiety over the expiry of a key euro zone refinancing program this week mounted. Investors shunned riskier assets and traders cited significant U.S. dollar short covering overnight, further weighing on the euro. The yen rallied as a 2 percent fall in European shares .FTEU3 raised the safe-haven appeal of the Japanese currency, along with the Swiss franc and the dollar, while the high-risk Australian and New Zealand dollars took a beating. Lower U.S. government bond yields, with 10-year Treasury yields at below 3 percent for the first time since April 2009, also prompted investors to cut short positions in the Japanese currency, weighing on dollar/yen. With markets skittish over Europe's finances and the global growth outlook, investors decided to take an earlier look at the U.S. government's payrolls report due on Friday, traders said. "We see all of this as a consequence of significant paring of risk ahead of Friday's (U.S.) non-farm payrolls," said Douglas Borthwick, head of trading at Faros Trading LLC, a full service FX execution firm in Stamford, Connecticut. "It's not a good time to be long risk, and we expect with month-end risk reduction, coupled with a touchy number on Friday compounded by model accounts adding to risk aversion trades, the moves we saw overnight could be the tip of the iceberg," he added. In morning trading in New York, the dollar rose 0.6 percent against a basket of major currencies .DXY. The euro was down 1.4 percent to 108.17 yen after hitting its weakest since late 2001 at 107.80 earlier in the day, and fell to 1.3238 francs according to Reuters data, the lowest since the single currency's 1999 launch. The Swiss franc has gained broadly since the Swiss National Bank earlier this month backed off its pledge to intervene in the currency market to stem franc strength. Comments from policymaker Jean-Pierre Danthine on Monday bolstered this view. "The absence of the SNB has opened up the door to 1.30 in euro/Swiss franc," said Borthwick. Against the dollar, the euro gave up 0.7 percent on the day to hit a two-week low of $1.2178 earlier, according to Reuters data. On Thursday, banks must repay 442 billion euros ($539 billion) borrowed a year ago at low rates as part of the European Central Bank's efforts to boost liquidity, which investors fear could leave the banks facing a liquidity shortfall. The ECB holds a three-month tender on Wednesday which many in the market expect will be tapped as banks scramble to pay back the one-year funds. Expectations are that 210 billion euros will be allotted at the offer. ECB Governing Council member Ewald Nowotny said the ECB is not considering offering banks another batch of 12-month loans to replace those expiring on Thursday. The funding needs reflect persistent stress in the banks of euro zone countries including Portugal, Italy, Spain and Greece. Europe's main barometer of investor anxiety, the VDAX-NEW volatility index .V1XI, rose more than 10 percent, hitting its highest level in three weeks. RISK ANXIETY A 3 percent fall in oil prices and a 4 percent drop in Shanghai stock market .SSEC also prompted investors to dump higher-risk currencies including the Australian and New Zealand dollar, which each fell more than 1 percent versus the dollar and around 2.5 percent versus the yen. Boris Simonder, a technical analyst at Nordea said net short positions on the euro/dollar in percentage terms have been only slightly trimmed following its short-covering rally earlier this month. The current net short stood at 31.7 percent, down from 36.7 percent two weeks ago though higher than one week ago, according to Nordea. "We continue to hold the view that the primary price trend for euro/dollar is still bearish and negative," he said. (Additional reporting by Naomi Tajitsu and Dominic Lau in London; Editing by Andrea Ricci)

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