* Greece bailout deal seen under threat after elections
* Spain's banking woes spur fears debt crisis is spreading
* Yen jumps on safe-haven bid
* Options show increasing bias for euro puts
NEW YORK, May 9 (Reuters) - The euro slid to a three-month low against the dollar on Wednesday on worries that political turmoil in Greece could threaten its rescue deal and on fears of the risks posed by the fragility of Spain's banks.
The euro also hit a two-and-a-half month trough versus the safe-haven yen as a jump in Spanish bond yields above 6 percent - one point away from levels deemed unsustainable - showed that investors were wary of the rising costs of fixing the country's banks, fueling fears the debt crisis could worsen.
"This is a continuation of a trend that has prevailed over the past week, with Greek political disarray likely to be a drag on the euro for the foreseeable future," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, D.C.
"The rise in Spanish bond yields is adding to the bearish tone and is providing investors with yet another reason to distance themselves from the single currency."
Investors also kept a wary eye on Athens, where efforts to form a government were expected to fail, putting the country's bailout deal in doubt and raising the possibility of Greece being forced out of the euro.
Greece's two main pro-bailout parties failed to win a majority in weekend elections, leaving questions over the country's ability to avert bankruptcy
There was a bit of a boost for risk sentiment, however, on news that the leader of a small right-wing Greek party said there was not enough parliamentary support to form a Greek government opposing the EU/IMF bailout.
The euro, which has now fallen for eight straight sessions, earlier fell as low as $1.2910, its lowest level since Jan. 23, before paring losses to last trade at $1.2954, down 0.3 percent on the day.
Against the yen, the euro was at 103.14, down 0.7 percent, after hitting a low of 102.73, its lowest level since Feb. 16.
Meanwhile, in France, President-elect Francois Hollande has advocated an approach to tackling the debt crisis centered more on growth, which may create tensions with Germany's insistence on fiscal austerity.
A bias against the euro was firmly evident in the options market, with demand for euro puts, or bets on the currency's decline, rising this month.
Three-month risk reversals were trading at -2.775 vols on Wednesday, flat from Tuesday, but up from -2.150 vols on May 1. Implied volatility has also risen, with three-month euro/dollar options at 10.80 percent versus 9.45 percent at the start of the month.
"In the next four weeks we should know who is controlling Greece, whether or not it runs out of money or chooses to adhere to its bailout terms and how the Spanish government plans to sort out its banking sector," said Kathleen Brooks, research director at FOREX.com.
"There are high levels of market risk associated with all of these events, which we believe is euro negative."
A souring in investor appetite for risk gave broad support to the low-yielding yen.
"The safe-haven flows into Treasuries depressed yields, which along with the yen's safe-haven status, is a key reason why it is higher today," said Western Union's Manimbo.
The yen hit a two-and-a-half month high versus the dollar at 79.41. The dollar was last at 79.64, down 0.3 percent on the day.
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