The euro fell against the dollar for the second straight day and hit a five-week low against the yen on Tuesday, with more selling expected on fears the euro zone's debt crisis is spreading across the region.

Yields on Italian benchmark 10-year bonds climbed back above the key 7 percent, a level widely deemed unsustainable, and Spanish borrowing costs rose ahead of the launch of a new 10-year bond launch on Thursday.

In a worrying sign of contagion, the spread of French, Belgian and Austrian 10-year bond yields over German Bunds all hit their highest levels since the euro was launched in 1999, while the equivalent Dutch spread hit its widest since early 2009.

Adding to bearish sentiment, the German ZEW survey showed analyst and investor sentiment slumped in November, the ninth monthly decline in a row. It said political and economic problems in Greece and Italy had raised uncertainty about the future.The dollar slipped 0.2 percent to 77 yen , hovering around its 50-day simple moving average at 76.95 yen.

It had earlier jumped to a high of 77.51 yen on trading platform EBS. Traders said investors would likely sell the dollar on rallies as the yen was well-placed to gain in a risk-averse environment despite the possibility of Japanese action to curb the yen's strength.

The dollar climbed to a five-week peak against the Swiss franc.