FOREX-Euro sinks

FOREX-Euro sinks as Italy hurt by debt contagion fears

Fear that the euro zone's debt crisis may spill over into Italy drove the euro to a record down against the Swiss franc on Monday as policy-makers tried to come up with a plan for a second round of Greek aid.

The currency also tumbled to a four-month down against the yen and a six-week trough against the dollar.

Fear that a default on Greek or other government debt would ripple through Europe's banks and put new strains on other countries' public finances has sparked heavy selling of Italian assets in recent sessions.

The spread between yields on 10-year Italian and German government debt widened.

Italy is the euro zone's third-largest economy and after Greece has the highest debt-to-output ratio among the 17 countries that use the euro.

"Italy might be a challenge that makes Greece look miniature by comparison," said Karl Schamotta, senior strategist at Western Union Business Solutions in Calgary. "We have a wide-ranging contagion issue here -- or at least the perception of one -- and that's making people very nervous."

The euro slid to $1.3984 EUR=, its lowest in six weeks. It was last down 1.6 percent at $1.4035, its worst one-day slide since June 15.

Commerzbank said near-term targets include $1.3968, the May 23rd low, and $1.3907, the 200-day moving average.

The European Union will publish results of new bank stress tests on Friday.

The euro also hit a four-month low of 112.37 yen EURJPY= and a record low of 1.1672 Swiss francs.

Investors see more gains ahead, particularly after the country's central bank chairman said prices were stable and there was no reason to curb franc strength.