The euro hovered near one-month lows against the dollar and fell sharply versus a broadly firmer Swiss franc on Monday, amid heightened sensitivity to risk in euro zone bond markets.

The premium investors demand to hold 10-year Irish and Greek government bonds rather than German Bunds rose on Monday, while the cost of insuring their debt against default also increased.

Benchmark 10-year German yields earlier hit a record low of 2.362 percent on worries about a faltering global economic recovery.

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.

At 0929 GMT (5:29 a.m. EDT), the euro was trading down around 0.6 percent versus the Swiss franc at 1.3328 francs after briefly falling below 1.3300 for the first time since July 8. Traders said sparse liquidity in currency markets was exacerbating the fall.

The Swiss franc was also in demand versus the U.S. dollar, which fell over 1 percent to a one-week low at 1.0398 francs. European banking stocks traded down around 0.6 percent

.SX7P.

The euro was up around 0.5 percent versus a broadly weaker dollar at $1.2810, helped by demand from a major Swiss bank.

But it remained near one-month lows of $1.2734 hit in overnight trade on trading platform EBS. That marked the sixth straight day of lower daily troughs for the single currency.

Last week, the euro fell as yield spreads between government bonds issued by peripheral euro zone countries and German Bunds widened due to concerns over the costs of supporting the Irish banking sector and disappointing Greek economic data.

Positive effects from strong German and euro zone growth figures were limited.

The problem for the euro is that growth is rather concentrated in Germany, with the periphery still struggling, said analysts at Credit Agricole CIB in a note to clients.

Technical analysts noted next support around $1.2725, a trendline taken from this year's low in the $1.1880 area.

JAPAN STRUGGLING

The euro traded down around 0.1 percent on the day versus the yen at 109.80 yen. Data showing that Japan's economic growth slowed markedly in April-June pulled euro/yen to one-month lows of 109.25 yen on trading platform EBS in Asia.

The yen's gains were tempered by caution ahead 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 and possible responses.

The yen rose to highest levels in 15 years versus the dollar last week, in a move driven by falling US yields.

A fall in the 10-year U.S. Treasury yield to a fresh 16-month low on Monday was one factor weighing on the dollar against the yen, which traded down around 0.5 percent at 85.70 yen.

Government sources have said it and the BOJ are coordinating to set up a meeting between Kan and Shirakawa that is likely to be in the second half of this week, and that has stirred market speculation that Japanese authorities may soon unveil some type of response on the yen.

(Additional reporting by George Matlock, Editing by John Stonestreet)

Versus