The euro hit a 16-month low versus the dollar on Monday, hurt by negative news from the euro zone over the weekend, with the risks of further declines seen in coming months.

The euro hit its lowest level since September 2010 of  $1.2666 on trading platform EBS at one point. Against the yen, the euro hit an 11-year low of 97.28 yen, its lowest level since December 2000.

The single currency later trimmed some of its losses and last stood at $1.2710, down 0.1 percent from late US trading on Friday and was changing hands at around 97.80 yen, down 0.1 percent.      

"We have revised down our 3-month EUR/USD forecast to 1.25 and during the initial quarter of this year do not expect investors to stray far from their long USD positions," Jane Foley, senior FX strategist at Rabobank, wrote in a client note.

"Insofar as 2012 has opened to a chorus of concerns as to whether EMU can even stay the course this year, we expect investors to continue hunting diversification trades. EUR/JPY, EUR/AUD and EUR/CAD are all likely to see further downside in Q1."     

One support area for the euro lies near $1.2600, roughly the 76.4 percent retracement of its June 2010 to May 2011 rally.      

US jobs data released last Friday highlighted the diverging growth outlook between the United States and Europe, suggesting further weakness in the euro/dollar pair.      

The newsflow from Europe over the weekend was also far from  inspiring. German magazine Der Spiegel reported on Saturday the International Monetary Fund was losing confidence in Greece's ability to clean up its public finances and work off its mountain of debt.

In addition, an adviser to Germany's finance minister Wolfgang Schaeuble told a Greek newspaper that a 50 percent write-down on Greek debt holdings, part of Greece's debt swap deal, was not enough to put the country's huge debt on a viable footing.  - Reuters