The euro fell 1 per cent from a six-week high against the dollar and dropped to a four-month low versus the safe-haven Swiss franc today as talks on a Greek debt swap deal dragged on, with a European Union summit unlikely to offer a resolution.

The lack of a breakthrough in Greek debt talks saw yield spreads between German Bunds and euro zone peripheral debt widen, adding to downward pressure on the euro. An auction of Italian government bonds went off smoothly, but did little to calm concerns.

The single currency fell 1.1 per cent on the day to $1.3085 having hit a six-week high in early trade.

Athens is unlikely to reach an agreement to restructure private sector holdings of its debt in time for the summit, where euro zone leaders were expected to sign off on a permanent rescue fund for the region and agree on inserting a balanced budget rule into national legislation.

Suggestions that Greece should give up control of its budget policy to European institutions drew an angry reaction from Greek finance minister Evangelos Venizelos, which traders said weighed on sentiment.

Four central European prime ministers said the "fiscal compact" treaty under discussion by EU leaders needed further changes to enable prospective euro zone countries to take part in euro zone summits..

"After so many disappointments and debate on the Greek issue, the market is expecting very little to be agreed to in the short term," said Michael Woolfolk, a senior currency strategist at BNY Mellon in New York. "What's surprising is that the euro is as strong as it is. Market action is suggesting the downside risk for the euro is not as once feared."

A deal that would cut the long-term value of privately held Greek bonds by just over 70 per cent is thought to be close, raising hopes the country at the heart of the euro zone debt crisis can avoid a messy default.

The talks have run into trouble over the coupon rate and whether the European Central Bank and other public creditors must also take losses on their holdings.

Valentin Marinov, a London-based strategist for Citi, said apart from uncertainty about a Greek debt deal, worries about its near-term fiscal outlook would remain.

"In this regard, today's EU summit could fail to lastingly appease investors' concerns," he said. "As a result, euro/dollar can lose most of its pre-EU summit gains in coming weeks. This will be a repetition of a pattern of pre-summit gains and post-summit losses we have observed in the past."

The euro is on track for gains against the dollar this month but overall sentiment is bearish as a regional sovereign debt crisis rumbles on and the prospect of a euro zone recession looms.

The euro fell versus the Swiss franc at 1.2038 francs, but traders said large bids were preventing a move towards the Swiss National Bank's franc cap of 1.2000.

Despite the losses, Nomura recommended investors double long positions in the euro against the Swiss franc. The firm said the euro/Swiss franc floor at 1.20 francs is absolutely credible and there would be no change in policy despite SNB Chairman Phillip Hildebrand's recent resignation.

They recommended buying euro at the spot rate of 1.2060 francs, with a target of 1.2450 and stop loss at 1.1990.

Against the yen, the euro fetched 100.19 yen, down 1.2 per cent.

Meanwhile, the Australian dollar moved further away from a three-month peak hit in the wake of the US Federal Reserve's pledge to keep interest rates low and after rating agency Fitch put major Australian banks on a negative ratings watch.

The Aussie was down 1 per cent on the day at $1.0543, with traders citing selling by leveraged players amid a pullback in risk appetite.

The dollar fell 0.1 per cent to 76.56 yen with the session low of 76.52 yen being the lowest since Japanese authorities intervened on October 31 to weaken the yen.