* Uncertainty over Greece, weaker euro zone GDP hit euro
* Dollar falls vs yen after Bernanke comments
* Greek banks ask gov't for more financial support (Updates prices)
By Wanfeng Zhou
NEW YORK, April 7 (Reuters) - The euro fell against the dollar on Wednesday as concern over Greece's debt crisis pushed the yield spread between Greek and German government bonds to its widest since the euro's launch in 1999.
The Canadian dollar broke parity against the greenback for a second straight day, while weaker-than-expected UK service sector data pushed sterling lower.
The euro, which earlier hit $1.3327 -- its lowest level in more than a week -- has weakened amid reports that Greece wanted to renegotiate last month's joint European Union-International Monetary Fund aid package. For full story, see [ID:nLDE63513Y]
Greece denied the report, but investors remained anxious on Wednesday and ditched Greek assets. The premium demanded to hold 10-year Greek government debt rose more than 4 percentage points above that on German Bunds, the euro zone benchmark.
"Everyone is still focused on the Greek bond yields. Certainly the Greek bond's weakness is calling into question whether there'll be a potential of a Greek default," said Dean Popplewell, chief currency strategist at OANDA in Toronto.
With the Greek outlook in question, investors bet the European Central Bank would likely keep interest rates low for some time, removing incentive to hold euro-denominated assets.
The euro <EUR=> was last down 0.4 percent at $1.3353, according to Reuters data. Against the Japanese yen, it lost 0.8 percent to 124.61 yen <EURJPY=>.
Revised data showing euro zone growth stalled in the last quarter of 2009 also weighed on the euro zone single currency. [ID:nLDE6360KQ]
The dollar hit a session low at 93.16 yen and was last down 0.5 percent at 93.29 yen <JPY=>. U.S. bond yields fell on strong demand for a $21 billion Treasury auction and Federal Reserve Chairman Ben Bernanke said the U.S. economy still faces significant headwinds. [ID:nWEQ003857]
"Rather than acknowledge the improvements in the economy, (Bernanke) said there are 'daunting' economic challenges," said Kathy Lien, director of currency research at GFT in New York.
It implies that he "is not optimistic enough about the outlook for the U.S. economy to raise interest rates," she added.
EURO'S GREEK TRAGEDY; CANADA DOLLAR
Worries over debt problems in Greece and other peripheral euro zone countries have knocked the euro down almost 9 percent from its January high of $1.4582.
Sentiment on Wednesday was also dented by news that Greek banks have asked the government for more financial support, highlighting the problems facing Greece's economy, which is expected to contract by at least 2 percent this year. [ID:nLDE6360NB]
Traders said the next key euro/dollar downside support level is around $1.3270 and a break below that could see it fall toward $1.30.
The Canadian dollar <CAD=D3> rose as high as C$0.9977 against the greenback, its highest intraday level since July 15, 2008. It last traded at C$1.0043 per U.S. dollar.
Citigroup in a research note said Canada's economic indicators have "shown more strength relative to expectations than any other major country except for Switzerland," which has increasingly translated to rising interest rate expectations.
"With USD/CAD trading in line with moves in interest rate spreads, this points to a sustained move beneath parity."
Traders said the Canadian dollar could rise to C$0.98 per U.S. dollar, the bottom of the pair's range since 2008.
Sterling <GBP=> fell as low as $1.5140, before recouping losses to trade at $1.5244, down 0.2 percent after Britain's services purchasing managers index fell in March.