FOREX-Euro rises before Greek vote; gains seen limited

* Eyes on Papandreou confidence vote in parliament

* Traders bet on positive outcome, but gains limited

* Euro pares gains after weak German ZEW survey

* Euro/dollar options show wariness over euro downside

By Jessica Mortimer

LONDON, June 21 (Reuters) - The euro rose on Tuesday as investors bet Greek Prime Minister George Papandreou would survive a confidence vote crucial in helping the country avert a debt default.

Traders were wary of holding short euro positions going into the parliamentary vote due later in the day, and analysts saw only short-lived boost if it is passed as Greece must also vote on new austerity measures on June 28.

The euro EUR= was up 0.3 percent at $1.4355, with offers reported around $1.4380-85. It was expected to face stiff resistance ahead of $1.4500, with the 55-day moving average around $1.4411 ahead of the June 15 high at $1.4451.

The euro trimmed gains after a survey showed German investors in June took their most bearish view about the euro zone's largest economy in over two years, hurt by the Greek debt crisis and indicators of softer activity ahead. [ID:nLDE75K0OT]

"We should see cautious trading ahead of the Greek vote and if it is passed euro/dollar should react positively," said Roberto Mialich, currency strategist at Unicredit in Milan, who expected gains to be capped below $1.4450.

"The picture is so uncertain about the euro zone periphery that it will prevent big investors from taking large directional positions". He said if the Greek vote was not passed, investors would quickly ditch the euro, leaving it poised to test $1.40.

Papandreou must win the vote if he is to secure backing for a new round of spending cuts, tax hikes and state asset sales needed for a 12 billion euro lifeline from the European Union and International Monetary Fund to avert a sovereign default. [ID:nL3E7HL0BG]

"Going into the confidence vote, people are thinking the Greek government will win and they don't want to be short of euros going into it," said Adrian Schmidt, currency strategist at Lloyds.

"There is a danger that there will be a knee-jerk positive reaction after the vote but then people will not want to be long of euros with the austerity vote coming up".

BETS ON EURO FALL

Although euro/dollar was higher, risk reversals showed strong demand for options betting on euro falls, suggesting longer-term investors were wary of downside risks.

"The basic stance of many market players is that they go long on the euro to earn higher interest rates and get away from the euro just when the risk from the debt problems seems large enough," said Seiya Nakajima, chief economist at Itochu Corp in Tokyo.

In the options market, one-month euro/dollar risk reversals were trading around 2.8 percent in favour of bets on the euro falling, or puts EUR1MRR=ICAP. This was near the highest level since the euro zone's debt problems reached crisis point in May-June 2010.

Implied volatility on one-month euro/dollar options EUR1MO= stood around 13 percent, off a high around 14 percent hit last week but well above the 11 percent struck early this month. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Euro ministers' statement on Greece [ID:nLDE75J007]

More on euro zone crisis [ID:nLDE68T0MG]

Graphic on Europe's debt crisis

r.reuters.com/hyb65p ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

The euro was also lifted by short-covering after Klaus Regling, chief of the European Financial Stability Facility, said on Monday that the bailout fund's guarantees would be raised to 780 billion euros from the 440 billion that has just been rubber-stamped by ministers.

The euro pared gains after Fitch Ratings said it would regard both a Greek sovereign debt swap and a rollover of maturities, even a voluntary one, as a default. [ID:nL3E7HL08T]

But the impact was mitigated as Fitch also said it would review its U.S. rating if Congress did not agree to raise the country's debt ceiling by Aug. 2.[ID:nL3E7HL08T]

This helped push the dollar down 0.3 percent against a basket of currencies .DXY to 74.821. The U.S. central bank has a two-day policy meeting ending on Wednesday, its first since U.S. economic data started to take on a decisively weaker tone around a month ago.

The Australian dollar was steady at $1.0577 AUD=D4, underperforming after the minutes of the Reserve Bank of Australia's June meeting showed the bank thought recent data had not added urgency to the need for tightening. [ID:nL3E7HL08W]

(Additional reporting by Hideyuki Sano; Editing by John Stonestreet)