-- Euro extends losses before steadying against range of currencies -- Eastern European currencies fall sharply -- Euro-area jitters spread to Asia as yuan sinks By Laura Clarke The euro hit new two-year lows against the dollar in early trade Monday as Spanish government borrowing costs continued to climb and Greek euro-zone exit worries resurfaced, but then recovered its poise as the European session wore on. The future of the euro zone remained uppermost on currency traders' minds as benchmark Spanish bonds and European stock markets fell sharply, while experts from the so-called troika of international lenders--the European Commission, the European Central Bank and the International Monetary Fund--were due to visit Greece Tuesday to review the country's reform program. The single currency hit multi-year lows against the Norwegian krone, the Australian and Canadian dollars, and the British pound, as well as the yen, before steadying in later European trade as tensions calmed. "As Spanish bond yields continue to rise, the favoured trade is to continue selling euros," said UBS FX strategist Chris Walker. The buck was weaker against the yen, briefly sneaking below Y78 and prompting Japan's finance minister to warn of "decisive" action if the Japanese currency rose too sharply. Some strategists, though, were unperturbed about the prospect of Bank of Japan buying to tame yen strength. "We favor further downside in the euro and prefer expressing this view versus the yen. The Japanese finance minister was clear in stating that [this is] more a case of euro weakness than yen strength, so any intervention threat is probably unfounded," Mr. Walker. Ten-year Spanish bond yields almost touched 7.5%, a level widely seen as unsustainable if the country is to remain solvent. "The move in Spanish bond yields is not very helpful." said Steven Saywell, head of FX strategy at BNP Paribas in London. "The market would like to see some help with Spanish bonds [and] tough action from Spain, which we're getting, but also that the ECB should reward that by coming in and buying Spanish bonds to bring down yields. This 7.5% high is a major new concern," he said. Central and Eastern European currencies like the Czech koruna, Hungarian forint, Romanian leu and Polish zloty were also big decliners, depreciating against even the euro, as reverberations from the growing pressures inside the euro zone spread beyond the bloc. HSBC emerging market currencies strategist Murat Toprak said the rally in CEE currencies seen after the ECB cut its deposit rate to zero earlier this month had been overdone and was now unwinding. "I was surprised by the appetite for these assets considering the economies have such strong linkages with the euro zone," Mr. Toprak said. In Asia, meanwhile, China's yuan fell to a nine-month-low against the dollar. At 1113 GMT, the euro was trading at $1.2134 against the dollar, compared with $1.2126 late Friday in New York, according to trading system EBS. The dollar was at Y78.22 against the yen, compared with Y78.41, while the euro was at Y94.71 compared with Y95.09. Meanwhile, the pound was trading at $1.5539 against the dollar, compared with $1.5602 late Friday in New York. The Wall Street Journal Dollar Index, which tracks the dollar against a basket of currencies, was trading at 72.50, compared with 72.35 late Friday in New York. Write to Laura Clarke at laura.clarke@dowjones.com.

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