* Uncertainty over Spanish bailout request unnerves market * Bank of Spain warns of significant fall in GDP in Q3 * BOJ says ready for more monetary stimulus, yen steady NEW YORK, Sept 26 (Reuters) - The euro slipped to a two-week low against the dollar on Wednesday as Spain's economy weakened sharply and its 10-year bond yield again topped 6 percent, increasing worries that the euro zone's debt crisis is worsening. The yen managed to hold its ground against the dollar despite a Bank of Japan official warning that policymakers "won't hesitate" to launch another bout of monetary stimulus. But traders, following recent trends, remained focused on the euro after the Bank of Spain said the economy slowed "at a significant rate" in the third quarter and protests against unpopular economic reforms in Madrid turned violent. The news could push the government to request a bailout, something Spanish Prime Minister Mariano Rajoy told The Wall Street Journal he might do if Spain's debt-financing costs stayed too high for too long. Spain's 10-year bond yield topped 6 percent on Wednesday for the first time in a week, while the euro fell to $1.2834, a two-week low. It was last trading at $1.2856, down 0.3 percent for the day. In another troubled euro-zone nation, Greek police clashed with hooded rioters hurling petrol bombs as tens of thousands took to the streets of Athens on Wednesday in Greece's biggest anti-austerity protest in more than a year. "As if insulted by all the attention that Spanish protesters were getting, Greek citizens held a protest of their own as well," said Neal Gilbert, market strategist at GFT in Grand Rapids, Michigan. "All of this uncertainty is causing investors to head for the exits and scramble for some safe-haven assets, propping up the U.S. dollar." Spain's government has so far been reluctant to request aid, though doing so is a condition for the European Central Bank to help lower borrowing costs by buying Spanish debt. Boris Schlossberg, managing director at BK Asset Management, in New York, said a Spanish bailout may not help the euro much. If Spain bows to market pressure and asks for help, he said traders may start to target indebted Italy, which could make the debt crisis worse. "Then you have massive risks in the euro zone." The euro, which has already lost 2.5 percent since last week's four-month high around $1.3169, could fall as low as $1.25, he said. While a report showing single-family U.S. home sales held near two-year highs last month had no impact on prices, it was more evidence "that (housing) is at or near a bottom," said Omer Esiner, chief strategist at Commonwealth Foreign Exchange, in Washington. STUBBORN YEN STRENGTH The euro also fell to a near two-week low against the yen of 99.69 yen. The risk of unrest in Greece, where the government faced its first big anti-austerity strike since taking power in June, also hurt the euro. The euro was last down 0.4 percent at 99.93 yen. Against the greenback, the yen fell 0.1 percent at 77.72 per dollar. Warnings from Bank of Japan board member Takehiro Sato, who told Reuters policymakers were ready to expand monetary stimulus further, had little effect on the exchange rate. Some traders said half-year book closings in Japan could pull some funds back into the country, putting mild upward pressure on the yen. But a sustained rally was unlikely, traders said, particularly now that the Federal Reserve has committed to keeping U.S. interest rates at zero for the next three years and pumping money into the economy until the job market improves. Traders said they expected the yen to retest the seven-month high against the dollar hit on Sept. 13, the day the Fed announced its aggressive easing policy. Countering that trend, Schlossberg said, will take an equally aggressive Japanese easing campaign. "The BOJ has been too cautious," Schlossberg said. "They need a bigger, open-ended program that really lowers Japanese yields. Until then, the dollar is simply going to trade on the yield differential between Treasuries and Japanese government bonds."
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