(Updates prices, adds comment, changes byline, dateline; previous LONDON)
* Euro drops below $1.10, dollar index at one-month high
* Lower German Bund yields also weigh on euro
* Commodity currencies sell off
By Gertrude Chavez-Dreyfuss
NEW YORK, July 7 (Reuters) - The euro dropped to a five-week low against a buoyant U.S. dollar on Tuesday, after the European Central Bank left emergency liquidity aid for Greek banks at current levels but increased the haircuts on the collateral it demands.
That raised concerns Greek banks could soon run out of cash and that Greece’s problems will spread to other southern European countries.
German 10-year Bund yields fell to their lowest since early June and interest rate differentials moved against the euro, which fell to a six-week trough against the yen.
“Markets seem to be losing patience and faith in the Athens’ debt crisis ending with Greece’s banks intact and the country still a member of the euro zone. Still, panic had yet to set in for the markets,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
Traders said the next 24 hours could be crucial. Euro-area leaders and finance ministers are meeting in Brussels to discuss Greece and a lack of progress could pressure the euro.
European Commission President Jean-Claude Juncker told the European Parliament on Tuesday Greece’s government must come forward with proposals to resolve its debt crisis. He said he still opposed calls for Greece to exit the euro.
Since Athens missed a debt payment to its creditors and Greek voters rejected tough conditions for further bailouts, the euro has retreated from mid-June highs of $1.14, but there has been no panic selling. One reason is expectation the ECB will take action, including more quantitative easing, to stabilise the market.
Against the dollar, the euro fell 1.2 percent to $1.0925 , after sliding to a five-week low of $1.0917, while the dollar index rose 0.9 percent to 97.154, after earlier hitting a one-month high.
The euro was last down 1.4 percent versus the yen to 134 yen , after earlier dropping to a five-year trough.
Meanwhile, commodity currencies fell sharply, with the Australian dollar hitting a six-year low as Chinese stock markets went into a tailspin.
The Australian dollar, which is a proxy for Chinese investments, fell more than 1 percent to US$0.7414, with a drop in iron ore prices also weighing, traders said. It earlier tumbled to its lowest since May 2009.
The New Zealand dollar plunged as well, falling to a five-year low against the greenback. It was last down 0.9 percent at US$0.6627. The Canadian dollar, meanwhile, hit a three-month low of C$1.2732 against its U.S. counterpart . (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Anirban Nag in London; Editing by Meredith Mazzilli)