FOREX-Euro stalls near 2-month peak, meets resistance

* Euro near 2-month peak, but meets resistance

* Caution over stress test results cap euro's advance

By Hideyuki Sano

TOKYO, July 27 (Reuters) - The euro held near a two-month peak against the dollar on Tuesday on relief over stress tests on European banks, but it was capped at $1.30.

Initial relief in markets that most European banks passed the regulator's tests was being replaced by concern the tests were not rigorous enough, making traders hesitant to bid up the euro.

"I suspect the euro could face stiff resistance around $1.30. There is still a lot of criticism about the stress tests, which markets will eventually price in," said Daisuke Karakama, a market economist at Mizuho Corporate Bank.

Caution also set in ahead of earning reports by some European banks later on the day, including Deutsche Bank (DBKGn.DE), which has not revealed its exposure to Southern European countries in the wake of the publication of stress test results.[ID:nWEA4120]

The euro was little changed in early Asian trade at $1.2985 EUR=, after having risen around 0.7 percent on Monday but stopped short of testing last week's two-month high of $1.3029.

Technical analysts said the euro may still push toward $1.3125, a 38.2 percent retracement of its December-June move, should it clearly break above $1.30.

Any fall in the euro was also seen limited while it remained above support at $1.2870 -- its 100-day moving average -- and last week's low around $1.2730.

Against the yen, the euro was flat at 112.80 yen EURJPY=. It has met stiff resistance around the 113.30-50 area in the past two weeks, partly on selling by Japanese exporters.

But Osamu Takashima, chief FX strategist at Citibank in Tokyo, said the euro is likely to rise above 113 yen.

"It's true Japanese exporters were lowering their target price to around 113 yen from 118 yen. But looking at trade data, exports to Europe are stagnating, which points to limited selling by exporters," Takashima said.

"Despite all the negative talk about the stress test results, German interest rates are rising and the euro firmed, which seems to suggest lingering euro short-covering needs," he said.

The dollar was little changed against the yen at 86.87 yen JPY=.

High-yielding currencies slipped after having risen the most among major currencies on Monday after the stress test results whetted investors' risk appetite.

The Australian dollar eased 0.1 percent to around $0.9010 AUD=D4, not far from 2 1/2-month high of $0.9037 hit on Monday. (Editing by Michael Watson)