The euro fell below $1.24 US Wednesday and investors poured into the safest of government bonds amid reports that the European Central Bank rejected a plan to help Spain pay for a banking bailout.

The euro was trading as $1.2365 US, down 0.01 per cent and at its lowest level since the summer of 2010, late in the afternoon.

Investors piled into U.S. 10-year Treasury bonds, pushing its yield to a 66-year low of 1.62 per cent, and bought the German government's two-year bonds, which has a zero interest coupon.

"There's just a massive flight to safe-haven assets today," Bill O'Donnell, head of U.S. Treasury strategy at the Royal Bank of Scotland, said.

He characterized the rush into U.S. bonds by citing a well-known, unsavory analogy made by Richard Fisher, the head of the Federal Reserve's Dallas bank: "The U.S. is the prettiest horse in the glue factory."

Such purchases are not about turning a profit, said O'Donnell. People are simply handing their money over for safekeeping.

The U.S. Treasury market is still considered one of the safest places in the world to stash billions in a hurry. At $11 trillion, no other market is as large, so there's always somebody ready to buy or sell them.

'The U.S. is the prettiest horse in the glue factory.' —Bill O'Donnell, Royal Bank of Scotland

"When people just want to get their money back, there's not a lot of competition," O'Donnell said.

The fall in the euro came as Spain's borrowing costs soared closer to levels where other debt-stricken countries, such as Greece and Ireland, have asked for an international bailout.

The yield on Spanish 10-year bonds shot up a quarter of a percentage point to 6.67 per cent, as buyers demanded a higher return for a greater risk of default.

That matched the level it hit at the height of the eurozone crisis late last year, according to financial data provider FactSet. The yield later fell back to hit 6.55 per cent in afternoon trading.

A yield of seven per cent is seen by many analysts as unsustainable for a country to continue financing itself over the long term. Meanwhile, the difference between the Spanish bond and the equivalent safe-haven German bunds was a record 5.36 percentage points.

Investors are most worried about whether the country will be able to finance a bailout of its banking sector, which is burdened by bad real estate loans.

Earlier Wednesday, the government vehemently denied newspaper reports that the European Central Bank had rejected a Spanish idea to finance a bank bailout and it defended the country as sound.

Spain's Ibex 35 stock index closed down 2.6 per cent at a fresh nine-year low of 6,090.40.

EU proposes 'banking union'

At the same time, the European Union's executive office called on the 17 countries in the eurozone to create a "banking union" that can centrally oversee and — if needed — bail out the sector, which has become a weak link in the continent's financial system.

Bank failures have already overwhelmed the public finances of Ireland, forcing it to take an international bailout.

The European Commission, while recommending that Spain be given an extra year to meet its deficit targets, suggested that regulation of the entire eurozone banking sector be done centrally.

European leaders will consider the Commission's recommendations before making a ruling at a summit in June.

With files from The Associated Press