The euro hit 11-month lows and European stocks fell on Wednesday after the U.S. Federal Reserve warned Europe's unresolved sovereign debt crisis could hurt the giant American economy.

Debt markets were on edge ahead of a planned sale by in Rome of up to 3 billion euros (2.5 billion pounds) of new 5-year bonds - Italy's first sale of longer-term debt since the European Union took steps towards greater fiscal integration last week.

Yields at the auction look set to mark new euro-era highs.

Investors continue to avoid risk as they look to possible sovereign debt downgrades in Europe, said Hiroichi Nishi, equity general manager at SMBC Nikko Securities in Tokyo.

The euro hit a fresh 11-month low to the dollar of $1.3007.

The FTSEurofirst 300 stock index <.FTEU3> fell about 0.5 percent in early trade, largely in response to statements from the U.S. central bank's final policy meeting of the year where it noted modest improvement in the U.S. economy but added that market turbulence in the face of Europe's woes posed a big risk.

As expected, the Fed's also decided not to announce fresh stimulus measures.

Global stocks as measured by the MSCI world equity index <.MIWD00000PUS> extended their losing streak into a third straight day with the index is now down over 3.6 percent in the past month.

European leaders agreed to impose stricter budget discipline on euro zone members at a summit last week, but markets have since hardened to the view that the measures agreed to do not go far enough to resolve the two-year-old debt crisis.

That view was further cemented on Tuesday, when German Chancellor Angela Merkel rejected talk of raising the funding limit of a planned permanent bailout fund to backstop the currency bloc to above 500 billion euros.

(Editing by John Stonestreet)