The euro fell from a one-month high against the dollar on Monday after four days of gains, as an election win for pro-bailout parties in Greece failed to ease worries about Spain's debt problems after borrowing costs surged to unsustainable levels.

While the election result appeased immediate concerns about Greece being forced out of the euro zone, uncertainty persisted as the winning New Democracy party must now try to put together a government with other parties backing the international bailout, which is not an easy task to do.

Antonis Samaras, the New Democracy leader, on Monday, said the country needed as broad a coalition government as possible, after radical leftist refused to join.

Market players also fretted about the euro zone's ability to respond to the risk of contagion to other larger economies like Spain and Italy, with investors likely selling into any near-term bounce by the euro.

The win in Greece does not really resolve anything. It's still going to be tough for Greece, said Boris Schlossberg, managing director at investment advisory firm BK Asset Management in New York.

And with Spanish and Italian yields at high levels, the credit market remained skeptical that Europe is going to get out of the debt crisis.

Ten-year Spanish government bond yields, hit by persistent concern about the country's fiscal and banking problems, rose above the 7 percent line seen as unsustainable in the long-term and at a level that forced other peripheral euro zone nations to seek bailouts.

The euro was down 0.3 percent on the day at $1.2602, off a one-month high of $1.2747 struck in the Asian session, as it came under pressure on reported selling by Asian sovereign investors. This was the euro's worst showing in a week.

It fell past reported stop-loss orders around $1.2660-70 to $1.2620 in the European session with support expected around the June 13 high of $1.2610.

The euro also failed to hold gains after a positive Greek outcome as the result had already been priced last week. Greek equities, for instance, had rallied 14.1 percent between Tuesday and Friday, while the euro rose from roughly $1.25 to $1.2650 in and the S&P 500 rallied 2.5 percent in the same period.

Some strategists, however, saw potential for the euro to rise given a build-up of huge bearish positions in the common currency, taken on fears about a Greek exit from the euro zone.

But Howard Jones, adviser at RMG Wealth Management, said any rebound to $1.28 is a selling opportunity.

Positioning data showed speculators' massive net euro short positions of 195,187 contracts last week, even after having trimmed them from the previous week's record high of 214,418 contracts.

Fund of funds Quaesta Capital in Zurich Switzerland, which manages $3 billion in assets, saw euro shorts among its fund managers continuing to be one of the biggest positions last week, along with bets against the Swiss franc.

Interestingly, the U.S. dollar showed the largest outflow last week in the portfolios of the fund managers Quaesta tracks, while the Canadian currency showed the biggest inflow last week.

The dollar index was up 0.3 percent at 81.863 after hitting a one-month low of 81.266 .DXY.

Against the yen, the euro slipped 0.1 percent to 99.34, while the dollar advanced 0.2 percent TO 78.85 YEN as a result of the initial risk-positive reaction to the Greek vote.


In the options market, near-term implied volatilities fell, with the one-week easing to 11.45 percent from a high of around 16.75 percent last Thursday, while the one-month fell to a roughly four-week low of 11.26 percent.

However, one-month risk reversals still pointed to a bias for euro weakness.

European finance ministers meet on Friday and a summit is scheduled for the end of this month, but little is expected in the way of fresh policy measures towards a banking union or greater fiscal integration like common euro bonds.

Traders expect some volatility in the currency market in coming days. The common currency, however, could benefit versus the dollar on speculation that the U.S. Federal Reserve may opt for more easing to boost growth.

Many market players expect the Fed to extend its long-term bond-buying through Operation Twist by a few months from the current deadline of June, after a series of disappointing data.

Citigroup's economists, for instance, expect a modest extension of Operation Twist by $200 billion, although it may not have as much risk-positive impact as the two rounds of quantitative easing.