* Euro zone debt fears hit euro for 3rd day
* European stocks end lower but U.S. stocks edge up
* Oil gains; Brent erases early losses (Updates prices)
By Caroline Valetkevitch
NEW YORK, July 12 (Reuters) - The euro fell to its lowest level against the dollar in four months on Tuesday as moves by officials to stem the European debt crisis failed to allay concerns that the risk was spreading to Italy and Spain.
Euro-priced gold hit a record high as investors spooked by fears of contagion sought safety. Investors are worried about the potential effect on the global economy, especially as the U.S. recovery has struggled to pick up speed.
In a bid to keep Italy and Spain from the same fate as Greece, Portugal and Ireland, euro zone finance ministers promised Monday cheaper loans, longer maturities and a more flexible rescue fund. For details see [ID:nL6E7IB1PQ].
But they set no deadline and Dutch Finance Minister Jan Kees de Jager said a selective default for Greece was no longer being excluded. [ID:nB5E7I401K]
"The situation in Europe continues to deteriorate and uncertainties within the sovereign credit space remain high," said David Ader, head of government bond strategy at CRT Capital in Stamford, Connecticut.
Fears over Italy have accelerated concerns over the impact of the debt crisis because the country is the euro zone's third-largest economy.
In equities markets, European stocks hit a four-month low and closed down for a third straight day. Earlier, shares tumbled overnight in Asia on fears over the European debt crisis.
But on Wall Street, stocks were higher after posting their worst day in a month, gaining ground after the release of minutes from the last Federal Reserve meeting.
Helping support markets, traders cited rumors that the European Central Bank was buying peripheral bonds for the first time in three months, with Portugal the suspected target.
The pan-European FTSEurofirst 300 <.FTEU3> closed down 0.54 percent at 1,091.72, off its session lows.
In Asian markets, Japan's Nikkei stock index <.N225> closed off 1.4 percent, its biggest fall in a month, and Hong Kong shares <.HSI> posted their biggest daily fall in 14 months.
On Wall Street, the Dow Jones industrial average <.DJI> was up 53.55 points, or 0.43 percent, at 12,559.31. The Standard & Poor's 500 Index <.SPX> was up 6.26 points, or 0.47 percent, at 1,325.75. The Nasdaq Composite Index <.IXIC> was up 2.56 points, or 0.09 percent, at 2,805.18. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Eurozone pledges new steps to help Greece: [ID:nL6E7IB1PQ]
Italy dragged into eurozone crisis: [ID:nLDE76A0EA]
Graphic on sovereign credit ratings:
http://r.reuters.com/vyc22s
BOJ holds fire, more optimistic on economy:[ID:nL3E7IC00Q]
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Even though the minutes offered no surprises on the Fed's interest rate outlook, it showed some officials felt more policy easing might be needed if the economy grows too slowly to reduce unemployment. [ID:nW1E7IB006]
In European equities, Italian banks rose sharply, a rally mainly seen by traders as short covering following steep losses in the past few days.
"We are reaching nuclear-war-like valuation levels on financials. It's not absurd given the indecision of political leaders, nevertheless, a number of investors are trying to catch the falling knife," Thomas Kleb, head of equity sales at Societe Generale CIB, said.
In the foreign exchange market, the euro
"The power of the market to force the problems associated with contagion to the surface are clear today," said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto.
U.S. Treasuries prices edged up after solid bidding at a three-year note sale countered concerns over Washington's stalemate in talks to raise the $14.3 trillion debt ceiling.
The benchmark 10-year U.S. Treasury note
Oil prices were higher. U.S. crude futures
Euro-priced gold rose to a second consecutive record on Tuesday, driven by investors who found little comfort in pledges by European Union officials to contain the spread of the debt crisis across the single-currency bloc.
Spot gold