Spain's new government following Sunday's election that saw the conservative Popular Party inflict a heavy defeat on the ruling Socialist Party, analysts said.

The new leader, Mariano Rajoy "will need to implement some swift policy changes Spanish 10-year bond yields having climbed 70 basis points last week towards 6.50 percent," noted National Australia Bank's John Kyriakopoulos.

Rajoy's aim to promote jobs growth and deliver austerity measures to control the debt "looks a tough task," Kyriakopoulos added.

The euro traded at $1.3522 and 103.87 yen compared to $1.3519 and 104.00 yen late Friday in New York.

While there were some encouraging signs from Greece and Italy on political acceptance of austerity programme~p~{x[n Central Bank chief Mario Draghi's blunt rebuff to suggestions that the ECB can supply rescue funds for the eurozone added a new layer of risk in the markets.

The dollar eased ~7GCe yen as concerns over a US agreement to reduce its fiscal deficit pressured the greenback.

The dollar slid to 76.80 yen in Tokyo trade from 76.93 yen in New York late Friday.

The latest bid to find a long-term solution to the US debt crisis looked doomed to fail Sunday as lawmakers remained at odds over cutting social programmes and raising taxes on the rich.

Congressional stalemate over how to tackle America's $15 trillion budget deficit is adding to global economic concerns dominated by the financial woes that are threatening to unravel Europe's monetary union.

"There's a chance that people may move to sell dollars for yen to hedge risks that the US credit rating may be downgraded," a senior dealer at a European bank in Tokyo told Dow Jones Newswires.

Intervention worries could quickly mount if 76.00 is breached, analysts said. Japan last intervened in the currency`market in late October after the dollar hit a post-war low of 75.32 yen.