* USD benefits from mounting risk aversion
* Aussie hit, back below parity vs USD
* Worries grow as European bank funding condition tightens
SYDNEY, Nov 18 (Reuters) - The U.S. dollar held firm in Asia on Friday, while the euro was surprisingly resilient with European banks seen repatriating funds back home as signs of funding stress grew amid a deepening euro zone debt crisis.
The spotlight fell on Spain on Thursday, which had to pay the highest rate to sell its 10-year debt since 1997, just shy of the 7 percent mark seen as unsustainable. Even then, it could not raise the full target amount.
"The slow motion train crash continues, with USD funding now clearly a bigger issue as contagion spreads more deeply into Spain," said Sebastien Galy, strategist at Societe Generale (Paris: FR0000130809 - news) .
The euro was at $1.3462 versus $1.3459 late in New York, having recovered from a five-week low of $1.3421 plumbed on Thursday. Support for the common currency was seen around $1.3400, the 76.4 percent retracement of the October rally.
That saw the dollar index retreat slightly from a five-week peak of 78.467 to 78.282. The dollar, however, gained sharply against commodity currencies such as the Australian dollar, which are normally sold in times of market stress.
As a result, the Aussie fell below parity for the first time since Oct (KOSDAQ: 039200.KQ - news) . 12. It stood at $0.9986, having touched $0.9973 overnight.
"While risks to the downside appear more apparent, it's worth noting that the currency is now oversold on several momentum-based indicators," said David Scutt, a trader at Arab Bank Australia in Sydney.
"Keeping this in mind, should any good news surrounding Europe (Chicago Options: ^REURUSD - news) hit the screens, it's likely to see the Aussie spring higher on the back of short covering."
Against the yen, the dollar was steady near 77.00 yen , with investors wary of further Japanese action in the wake of the massive $100 billion intervention on Oct. 31.
Following a Fitch Ratings report released this week highlighting concerns over U.S. banks' exposure to euro zone debt, banks are showing little willingness to lend to one another, raising the risk that the debt crisis will turn into a credit crunch.
The premium for swapping euros into dollars rose on Thursday, with the three-month cross-currency basis swap around 6 basis points wider at -136 basis points, the most since the 2008 financial crisis.
German Finance Minister Wolfgang Schaeuble said on Thursday the euro zone's debt crisis was beginning to hit the real economy and urged vigilance to prevent contagion from infecting banks and insurance firms.
News out of the euro zone was mixed on Thursday, although Italy showed progress. The country's new prime minister announced sweeping reforms including a crackdown on tax evasion and changes to the tax system in order to dig the country out of crisis.
Athens, however, saw anti-austerity protesters clash with police.
Many analysts still believe the only way to help contain the contagion is for the ECB to buy up large quantities of bonds, effectively the sort of 'quantitative easing' undertaken by the U.S. and British central banks.
But Berlin continued to resist, saying European Union rules prohibit such action. (Editing by Ed Davies)
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