* Euro bounces vs dlr but hovers close to 1-month lows * Concerns over euro zone periphery remain * Swiss franc rallies broadly on safe-haven demand (Recasts, adds quote, detail) By Nick Olivari NEW YORK, Aug 16 (Reuters) - The euro recovered against the dollar on Monday after heavy selling last week, but safe-haven currencies won out on overall growth concerns. The premium that investors demand to hold 10-year Irish and Greek government bonds rather than German Bunds widened, while the cost of insuring their debt against default also increased, highlighting investors' concerns about peripheral euro zone economies. Benchmark 10-year German yields hit a record low on worries about a faltering global economic recovery. The Swiss franc and the Japanese yen, both used to fund leveraged carry trades, are typically sought in times of market stress. But it was the euro's gains that were most dramatic after the currency rebounded after falling almost 4 percent last week, its largest weekly drop since the week of May 9. "The euro bounced off of a three-week low against the greenback as bargain-hunters helped underpin demand for the single currency," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange, Inc in Washington. "However, given the market's much more selective mode of late, the euro remains vulnerable to mounting concerns about the health of the continent's banking sector and sovereign debt situation." Midway through the New York session, the euro gained 0.7 percent to $1.2839 after climbing as high as $1.2871 , recovering from one-month lows hit in Asian trade. The early sell-off in the euro marked the sixth straight day of lower daily troughs for the single currency. "The euro bounce ran out of steam around 1.2870, and given the renewed pressures on the periphery, we think euro gains are going to be limited near-term," said Win Thin, senior currency strategist at Brown Brothers Harriman. Thin said levels to look out for on the downside are 1.2600, the 50 percent retracement level of the euro's June to August rally and a band of minor support around 1.2730-40, the lows from July and August. SWISS RALLY The dollar was down 1.1 percent at 1.0391 Swiss francs after going to its lowest since Aug. 6 . The euro was 0.5 percent lower against the franc at 1.3334, having earlier dropped to its lowest since July 8. Traders said funds were lightening positions in euro/Swiss franc with sparse liquidity exacerbating the fall. "Spreads in the peripherals are wider, financial stocks are down and the Swiss franc is outperforming on safe-haven demand," said Kenneth Broux, markets strategist at Lloyds Banking Group. The euro gave up early gains against the yen , falling 0.3 percent to 109.54 yen. Though off the session low, it was not far from a one-month trough struck in Asian trade. The yen's gains came despite weaker-than-expected Japanese gross domestic product numbers. Anaemic growth and a rising currency pose a headache for Japanese policymakers. Investors are wary of a possible meeting between Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa later this week to discuss the currency's strength. [ID:nTOE67B07V] Some traders said Japan's weaker second-quarter GDP data could increase incentives for Japanese authorities to curb the yen's strength. The dollar was down 1.1 percent at 85.35 yen with investors like hedge funds still preferring to go short on the greenback. "The yen will not be driven by Japanese data but whether U.S. yields will head lower," said Gareth Berry, currency strategist at UBS in Singapore. "Things are pretty balanced right now but there is a general caution about risk appetite." The yen rose to its highest levels in 15 years versus the dollar last week. In other currency pairs, sterling extended gains versus the dollar, hitting the day's high as the UK currency tracked gains in the euro and yen against the broadly weak U.S. currency. The pound hit the day's high of $1.5696 and was last up 0.5 percent at $1.5666, with gains accelerating after stop-loss orders were triggered around $1.5620 and $1.5640. The yuan's nominal effective exchange rate, or its value against a trade-weighted basket of currencies, depreciated 1.44 percent in July over June, according to the latest data from the Bank for International Settlements. The yuan's real effective exchange rate, adjusted for inflation, slid 0.97 percent in the same period. (Additional reporting by Vivianne Rodrigues in New York and Anirban Nag in London; Editing by Dan Grebler)

Source