* Euro hits 2-month low vs dollar, 1-month low vs yen
* Concerns grows over weakness in euro zone 'core'
* Investors nervous ahead of Greece budget vote Sunday
NEW YORK, Nov 9 The euro dropped to a two-month
low against the U.S. dollar on Friday and could extend losses as
fears mounted that the euro zone's debt crisis and deteriorating
economic conditions could drag down global economic growth.
The U.S. dollar and the yen advanced, while the Australian
dollar weakened, as investors shed growth-linked currencies in
favor of safe havens.
Growth in Germany, Europe's largest economy, is likely to
slow in the fourth quarter and the first three months of 2013,
the Economy Ministry said. Industrial production in France,
Europe's second-largest economy, shrank in October and the
country's central bank said it expected to slip into recession
at the end of 2012.
"It's the core Europe now, not just the peripheral Europe,
that may be sliding into a recession," said Boris Schlossberg,
managing director of FX Strategy at BK Asset Management in New
York. "If that happens, then China will lose its export market
and the whole global economy will begin to contract."
"The market is really afraid that Europe could drag the
whole global economy down."
The euro fell as low as $1.2688 on Reuters data, the
weakest since Sept. 7, and was last down 0.3 percent at $1.2708.
It also hit a one-month low of 100.38 yen and was last
down 0.3 percent at 100.92 yen.
Traders said the euro could target the 100-day moving
average around $1.2636 and the Sept. 7 low of $1.2625.
"There has been a rather poisonous cocktail that is dragging
the euro down with weak European numbers today and renewed fears
of the euro zone crisis with Greece back on the agenda," said
Arne Lohmann Rasmussen, head of FX strategy at Danske markets.
"We would not be surprised if we saw the euro drop to the
$1.25 level within the next three to four weeks."
Investors were also nervous ahead of a Greek vote on Sunday
on the country's 2013 budget, the next big hurdle towards
unlocking access to urgently needed international aid after
Wednesday's tight vote in favour of an austerity package worth
13.5 billion euros.
However, euro zone finance ministers were unlikely to sign
off on the next tranche of aid for Greece at a meeting on
Monday, according to a senior EU official.
Uncertainty over whether Spain will apply for financial aid
also cast a shadow over the euro. Such a move would allow the
European Central Bank to buy its bonds and lift the euro.
Spain has so far resisted asking for aid. The prospect of
ECB support has driven its borrowing costs down and it has met
its 2012 bond issuance target.
"We are looking at a game of chicken between Spanish Prime
Minister Mariano Rajoy and the bond markets for looking at a
bailout," said John Hardy, FX strategist at Saxo Bank.
As the euro wilted, the dollar's index against a basket of
currencies rose 0.3 percent to 81.050, having earlier
risen to 81.087, a two-month high.
Worries over a looming "fiscal cliff" for the United States,
which could trigger tax rises and spending cuts if unresolved,
was likely to prompt investors to buy the safe-haven dollar.
But for now, Europe remains a bigger worry, some analysts
"I think everybody understands and appreciates that if there
won't be any kind of a compromise, there will be some sort of a
delay," BK Asset Management's Schlossberg said, referring to the
U.S. fiscal cliff.
The dollar fell to a three-week low of 79.06 yen,
before recovering to 79.44 yen, little changed on the day.
Data showing U.S. consumer sentiment rising to its highest
level in more than five years boosted stocks and Treasury
yields, helping the dollar rebound against the yen.
The Australian dollar lost 0.1 percent to $1.0386.
The Swedish crown weakened against the euro and
the dollar as industrial output saw its largest fall for
more than three years. Analysts said this raised expectations of
a rate cut in December.