Euro gains versus dollar but still vulnerable on Greece

NEW YORK (Reuters) - The euro edged higher against the U.S. dollar and Japanese yen on Tuesday, though it struggled to gain momentum on persistent fears that Greece may have to restructure its debt.

Renewed worries about debt troubles in the euro zone's peripheral economies have pushed the euro more than 5 cents below its recent peak near $1.50, reached last week. Traders expect the euro to slide further, approaching support around $1.4150 in the coming days.

The euro earlier gained after Dow Jones News reported Greece could receive new aid totaling 60 billion euros as soon as June to help it meet funding requirements. The currency pulled back after Greece denied the report.

"The only thing that seems 100 percent certain is that Greece remains mired in debt and that at least a good portion of that debt is at risk of not being repaid should the situation not change considerably, both in terms of the financial metrics and spending levels within the country itself," said Mark Frey, regional director at Wester Union Business Solutions in Victoria, British Columbia.

The euro was up 0.3 percent at $1.4403, well above a session low of $1.4270 on trading platform EBS. It hit a session peak of $1.4412 in late afternoon trading as gains in U.S. stocks boosted risk appetite.

Analysts said the euro is vulnerable to escalating debt worries even as investors remain focused on the outlook for higher rates in the euro zone compared with the United States.

A move lower could test support around $1.4150 -- near the mid-April low and a 38.2 percent retracement of the January-May rise at around $1.4145.

Lee Hardman, currency strategist at BTM-UFJ, said it was "quite likely" the euro had formed a medium-term top and that any move back into the high $1.40s could result in heavy selling by longer-term investors.

EURO SHORTS

Adding to uncertainty over the situation in Greece, a German member of parliament questioned whether Greece had met terms for its next aid tranche. A source said European Union and International Monetary Fund inspectors have not yet concluded whether Greece is meeting its targets.

On Monday, Standard and Poor's cut Greece's rating, saying its projections suggest reductions of between 50 percent and 70 percent of the bonds' original value could be needed to make Greece's debt burden sustainable.

Coupled with a media report last week -- later emphatically denied by European policymakers -- that Greece may be considering exiting the euro, it highlighted the dilemma of how best to extricate the country from its debt quagmire.

"The combination of deep recession, strict austerity measures and sky-high borrowing costs has sent Athens into a vicious debt cycle," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange, Inc in Washington.

Some traders said some macro accounts had started to reduce their euro short positions. Other market players also suggested selling was overdone in the near term after the euro tumbled from a 17-month high last week.

"We need a fresh trigger to go lower in the euro from here. I think we're in a $1.43/1.46 range for now," said Geoffrey Yu, currency strategist at UBS in London.

The euro was up 1 percent against the yen at 116.39 yen after earlier sliding to a 6-week low. The dollar was up 0.7 percent at 80.80 yen.

The Swiss franc fell to session lows against the dollar and the euro after Swiss inflation rose 0.1 percent month-on-month in April, well below forecasts and denting the chance of a rate increase in June.

(Additional reporting by Nick Olivari; Editing by Dan Grebler)