The Swiss franc soared on Monday and the U.S. dollar rallied against the euro, with demand for safe-haven currencies set to continue on concerns about slowing global economic growth and a possible cut of the United States' credit rating.

U.S. manufacturing grew at its slowest pace in two years in July, the Institute for Supply Management said, casting doubt on expectations the faltering recovery would quickly regain steam.

In Europe, the euro zone manufacturing PMI also fell in July to a two year low and perhaps more worrying, China's official government PMI dropped to its lowest level in two years also.

Initial euphoria about the U.S. Congress agreeing on a deal to raise the government's statutory borrowing limit faded as investors worried that the country might still lose its triple-A credit rating even though the risk of a default appeared to be off the table.

"The undercurrents of risk aversion still remain very strong," said Samarjit Shankar, managing director of global foreign exchange strategy at BNY Mellon in Boston. "Existing riskier positions that were funded in the yen, Swiss franc and dollars are being unwound, which is why all three currencies have been gaining relative to the others."

The Swiss franc climbed to record highs against both the euro and dollar, continuing a recent trend as investors fretted about sovereign debt crises on both sides of the Atlantic.

"The Swiss franc still stands out head and shoulders above the other so-called safe-haven currencies," Shankar said.

The euro plumbed a record low at 1.1030 Swiss francs on trading platform EBS, and last traded down 1.3 percent at 1.1171 francs.

The dollar hit as low as 0.77323 Swiss franc, before pulling back to 0.7834, down 0.2 percent on the day.

U.S. Senate Majority Leader Harry Reid said debt limit increase legislation would be completed in the Senate by Tuesday, but uncertainty about its fate in the more fractious Republican-controlled House of Representatives kept markets nervous.

The cuts proposed over the next ten years also fall short of the $4 trillion set by some ratings agencies as the threshold needed to avert a U.S. ratings downgrade.

"The markets are unsure about how this will play out and it is down to the wire, so the market is cautious right now," said Jessica Hoversen, FX analyst at MF Global in New York.

YEN INTERVENTION RISK

The euro fell to $1.41847 and last traded at $1.4260, down 0.9 percent on the day.

Yields on Italian and Spanish bonds continued to rise, suggesting persistent worries about the risk of contagion in the euro zone crisis and adding to risk aversion the market.

The dollar fell as low as 76.29 yen on EBS, its weakest since coordinated intervention by major central banks in mid-March to weaken the surging Japanese currency. The record low for the pair was at 76.25 set in mid-March.

The yen also jumped against the euro and Australian and New Zealand dollars.

The U.S. currency briefly surged against the yen in morning New York trade, though traders said the move did not appear to be related to intervention by Japanese authorities.

A trader said the jump in the dollar against the yen was partly due to a big order from a large Japanese bank under 76.50 yen and was part of the normal flow of the market.

An official from the Japanese Ministry of Finance in Tokyo said that while the office is aware of currency movements, he cannot comment on the dollar/yen move.

Still, the intraday spike heightened the market's alertness for potential official yen selling, helping the dollar rebound to 77.17 yen, up 0.6 percent on the day.

Analysts said a slew of key U.S. economic releases in the coming days, including Friday's monthly jobs report, should keep risk appetite subdued.

Against a basket of currencies, the dollar index was up 0.6 percent at 74.314. .DXY

(Additional reporting by Julie Haviv and Gertrude Chavez-Dreyfuss)