(Reuters) - The euro inched lower on Wednesday and held near a two-week low hit the previous day, as hopes faded that a European summit would deliver concrete measures to ease the region's sovereign debt crisis.
A quick move toward the issuance of common euro-zone bonds looked increasingly unlikely after German Chancellor Angela Merkel was quoted saying Europe would not share total debt liability "as long as I live".
The summit is unlikely to alter the single currency's downtrend, said Daisuke Karakama, market economist for Mizuho Corporate Bank in Tokyo.
"I think the euro could see a break below $1.20 by year-end," Karakama said. "I'm focusing more on just how far it might go if it drops below $1.20," he added.
The euro eased 0.1 percent to $1.2485, inching back in the direction of Tuesday's trough of $1.24413 on trading platform EBS, which was the euro's lowest level since June 8.
The next major downside target is a two-year low of $1.2288 hit on June 1.
"Since short positions have piled up, the euro could rise sharply at some point, but I think you have to be careful not to be fooled by such a move," Mizuho Corporate Bank's Karakama said.
Against the yen, the euro dipped 0.2 percent to 99.12 yen, having hit a two-week low of 98.74 yen on Tuesday.
In addition to Merkel's comments, the euro had come under pressure the previous day after Spanish bond yields rose as demand at a bill sale fell despite the significantly higher returns on offer to investors.
The dollar dipped 0.2 percent to 79.39 yen, well below a two-month high of 80.63 yen hit earlier this week.
The yen held its ground although some market players say political uncertainty may weigh on the Japanese currency.
Gareth Berry, associate director of G10 FX strategy for UBS in Singapore, said investors outside of Japan so far seemed unsure about how Japanese politics might affect the yen.
"I guess international investors have been burned so many times by trying to trade dollar/yen around Japanese political events," Berry said.
"They are happy to watch the story unfold but unwilling to take positions, in FX at least," he added.
Japanese Prime Minister Yoshihiko Noda faces the risk of a split in his party that could trigger a snap election after his signature tax-increase plan cleared parliament's lower house on Tuesday despite its rejection by a group of ruling party rebels.
(Editing by Eric Meijer)