* Euro losses deepen as fears of euro debt contagion dominate
* Falls to 1-year low in Asia of $1.2936
* Dlr at 1-year high on index on safe-haven demand
(Adds quote, detail; previous TOKYO)
By Neal Armstrong
LONDON, May 5 (Reuters) - The euro hovered near a one-year low on Wednesday, after tumbling in Asia as fears euro zone debt problems could spread spooked investors, while the dollar benefited from rising risk aversion.
The single currency slid to its lowest level since April 2009 with analysts and traders citing that month's low of $1.2880-85 as the next target.
A breach of that level would open the way for a test of $1.25, a level not seen since March 2009.
"The questionable way the Greek crisis has been handled and concerns about the peripherals are weighing on sentiment. I expect euro weakness to remain in place," said Kenneth Broux, market economist at Lloyds Banking Group.
"I see $1.25 as the next big level on the downside," he said.
At 0727 GMT the euro was trading down 0.1 percent at $1.2963. It shed more than 1.5 percent on Tuesday, its steepest one-day loss since last June, on concerns Greece's debt problems would spread to other so-called peripheral economies such as Spain and Portugal.
It has lost nearly 3 percent this week, as investors remain highly sceptical Greece will be able to carry out the tough austerity measures it promised in return for a 110 billion euro aid package from the European Union and the International Monetary Fund.
Technical analysts highlighted support at $1.2930, the 78.6 percent retracement of the 2008-2009 rally.
Spreads between benchmark German Bunds and Portuguese and Spanish bonds widened further on Tuesday.
The two-year Greek bond yield had surged by more than 400 basis points to over 16 percent in one its biggest one-day gains since the Greek debt crisis erupted earlier this year.
The euro also fell to its weakest level against the pound in nearly nine months on Wednesday, stumbling to 85.51 pence, according to Reuters data, down about 0.2 percent on the day.
Sterling faces its own test this week in a tightly contested national election on Thursday, from which markets are concerned no clear winner may emerge.
The dollar index rose 0.3 percent to 83.549, after climbing as far as 83.649, its highest level since May 2009, benefiting from safe-haven demand.
"There are no real safe havens out there at the moment but I guess the market will be looking at the dollar as the best of the worse bunch," said Greg Gibbs, FX Strategist at Royal Bank of Scotland in Sydney.
It gained 0.3 percent on the yen to 94.98 yen, pressuring an eight-month high of 94.99 yen struck on Tuesday, with talk of option barriers at 95 yen capping rallies.
Traders said the dollar was also supported by signs the U.S. economy was on the mend. Data released on Tuesday showed pending U.S. home sales rose 5.3 percent in March while factory orders rose 1.3 percent. Both numbers beat forecasts.
(Additional reporting by Charlotte Cooper, editing by Nigel Stephenson)