FOREX NEW YORK COMPANIES

* Aussie hits 8-mth low as China official PMI disappoints

* Yen off highs, market becoming wary of intervention

* Japan finmin Azumi threatens action vs yen rise

By Masayuki Kitano

SINGAPORE, June 1 (Reuters) - The euro hit a two-year low versus the dollar on Friday and could fall further in coming weeks, dogged by worries that Spain may need external aid to shore up its struggling banking sector and fix its public finances.

The euro's sell-off has gained steam this week as Spain's borrowing costs surged on worries it may need to issue more debt to recapitalise its banks, adding stress to markets already frayed by anxiety that Greece may exit the euro zone.

The heightened worries about Spain have been highlighted by a widening in the yield spread between Spanish 10-year government bonds and German Bunds to euro-era highs this week, and the euro has fallen almost in lock step with that move.

The euro fell to as low as $1.2324 on trading platform EBS at one point, its lowest level since July 2010. It later trimmed its losses and last fetched $1.2358, down 0.1 percent from late U.S. trade on Thursday.

"We're looking for $1.18 by the end of Q3, and at this rate, it could happen before that," said Callum Henderson, global head of FX research for Standard Chartered Bank in Singapore.

"During this risk-off environment, the U.S. dollar is the only place to be," he added.

Earlier, both the euro and the Australian dollar dipped against the U.S. currency after data provided fresh evidence of a slowdown in China's economy.

The Australian dollar fell 0.3 percent to $0.9697. It touched an eight-month low of $0.9648 after China's official purchasing managers' index (PMI) fell to 50.4 in May. That was the weakest reading this year and was also below the market's expectations.

Risk aversion on the worries about Europe, coupled with concerns about a slowdown in China - Australia's main export market - have weighed on the Australian dollar over the past month.

YEN OFF HIGHS

On Thursday, the euro gained a brief lift after The Wall Street Journal said the International Monetary Fund was discussing a contingency plan for a rescue loan to bail out Spain's third largest bank.

The report, however, was specifically refuted by IMF Managing Director Christine Lagarde.

The euro may not get much respite even if Spain gets an international bailout, said Standard Chartered's Henderson.

"If Spain had to be bailed out, the market would instantly focus its attention on Italy. Current European Union and IMF resources cannot fund bailouts of both Spain and Italy," he said.

The euro edged up 0.2 percent against the yen to 96.97 yen , staying above an 11-1/2-year low of 96.48 yen struck the previous day.

Weighing on the yen were comments by Japanese Finance Minister Jun Azumi, who said Japan would act decisively against the yen's rise if excessive market moves continue.

The yen's broad surge this week including its rise to a 3-1/2-month high versus the dollar, are making market players wary about the potential for Japanese yen-selling intervention, traders say.

The dollar edged up 0.2 percent to 78.46 yen but still remained close to Thursday's low of 78.21 yen, the dollar's lowest level against the yen since mid-February.

A fall in the 10-year U.S. Treasury yield to a record low this week has cut the yield advantage of Treasuries over Japanese government bonds, and has helped drag the dollar lower against the yen.

Traders say the dollar could come under renewed pressure against the yen if U.S. jobs data due on Friday comes in weak. The data is expected to show U.S. employers created 150,000 jobs in May.

Friday also marks the start of direct trading in the Chinese yuan against the yen, a baby step toward raising the yuan's international role.

While banks have previously conducted direct trading in the yuan versus the yen with their customers, the initiative will allow banks to conduct direct yuan/yen trading with each other without having to go through the dollar, market players say.