* Euro hits five-week low, eyes Oct (KOSDAQ: 039200.KQ - news) trough around $1.3140
* ECB's buying Italian bonds fails to bring down yields
* More euro losses seen as crisis spreads to core Europe (Chicago Options: ^REURUSD - news) (Updates prices)
NEW YORK (Frankfurt: A0DKRK - news) , Nov 16 (Reuters) - The euro fell to five-week lows against the dollar and yen on Wednesday as rising French and Italian borrowing costs heightened concerns about contagion in the euro zone debt crisis.
The European Central Bank's purchase of Italian and Spanish bonds brought only temporary relief. Once intervention stopped, yields resumed climbing as investors doubted how much the ECB can buy to support the bond market.
Analysts expect the euro to remain under pressure as troubles in the periphery appear to be spreading to core nations in Europe with France the latest target of investor angst as policy makers remain behind the curve in finding a solution to the region's debt problems.
"The euro/dollar is being pushed and pulled by many things in the market of late, but ECB intervention in the Italian and Spanish bond markets seems to give the pair some support and comfort today," said Greg Michalowski, chief currency analyst at FXDD, a retail brokerage in New York. "Tomorrow Spain is scheduled to sell 4 billion 10 year bonds. How that auction goes will give the market a clue as to the real demand from investors."
The euro was last down 0.3 percent at $1.3495 , after earlier dropping as low as $1.3427 on Reuters data, the weakest level since Oct. 10.
Against the yen, it down 0.4 percent at 103.87 yen , after earlier hitting 103.37 yen.
The common currency also came under pressure after Italian bank UniCredit (MDD: UCG.MDD - news) said it would ask the ECB to extend its access to funding, stoking concerns about the health of euro zone banks. For details, see [ID:nL5E7MG237]
"Markets are slowly losing their will to believe in an EU solution, and this is being reflected in the debt market," said Paul Bregg, a currency trader at Western Union Business Solutions in Denver, Colorado.
Traders cited euro selling from macro funds. Samarjit Shankar, managing director of global FX strategy at BNY Mellon in Boston, said net inflows into the euro "have virtually dried up, with the seeming hesitation on the part of even the more tactical market participants."
The dollar slipped 0.1 percent to 76.98 yen . Dollar/yen has now broken through the 61.8 percent Fibonacci retracement of the move on the Oct 31 intervention on an intraday basis for four straight days.
ECB ROLE
Bond purchases by the ECB initially pushed Italian yields down to around 6.83 percent and sparked a rebound in the euro. But yields later climbed back above 7 percent, a level widely deemed unsustainable.
Mario Monti, a former European commissioner, was sworn in as Italy's prime minister and formed a new technocrat government on Wednesday, but analysts were skeptical the move would be enough to calm financial markets.
In a sign the debt crisis is spreading to Europe's core economies, the yield spread between French 10-year government bonds over German Bunds hit its highest level since the euro's launch in 1999 before easing. France is the second-largest economy in the euro zone.
This made for a difficult backdrop for auctions of up to 11 billion euros of Spanish and French bonds Thursday. The Spanish sale of new 10-year debt is likely to struggle as the country's finances come under scrutiny days before a general election.
France and Germany clashed over whether the European Central Bank (Other OTC: CBSU.PK - news) should intervene to halt the debt crisis.
A French government spokeswoman said the ECB's role is to ensure the stability of the euro and also the financial stability of Europe. But German Chancellor Angela Merkel made clear Berlin would resist pressure for the central bank to take a bigger role in resolving the debt crisis. [ID:nL5E7MF410]
Western Union (NYSE: WU - news) 's Bregg said the rise in French borrowing costs was especially worrying. "Rumors of a debt downgrade are circling daily. This is not good news, especially when France is one of the main funding countries for the bailout fund and Europe's number two economy." (Reporting by Nick Olivari and Wanfeng Zhou, Editing by Chizu Nomiyama)
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