* Euro swings in choppy trade, offers cited above $1.2530 * Austrian minister says Italy may also need a bailout * Near-term implied volatility jumps ahead of Greek election By Julie Haviv NEW YORK, June 12 The euro rose against the dollar and yen in choppy trade on Tuesday as risk aversion abated somewhat, but concerns over Spain's bank bailout deal and a looming Greek election are seen capping the single currency's upside. Reports of official preparations for a Greek exit from the euro zone, uncertainty about the logistics of Spain's bank bailout and a rise in Spanish and Italian bond yields had investors selling the euro at higher levels. The euro retreated from a near three-week high on Monday as the initial euphoria from Spain's 100 billion euro bank rescue fizzled, with investors concerned bailout-related payments could rank ahead of regular government debt in the queue for repayment. "Spain's bank bailout is fraught with unanswered questions and markets do not like uncertainty," said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto. Some of the outstanding issues of Spain's bank bailout are whether the sovereign debt holders will be subordinated by the bank aid; which vehicle will fund the package; and what the interest rates and terms will be. "Investors will likely continue to sell the euro into strength, especially with Greek elections on Sunday and a European Union summit next week, which should be heavy in headlines" she said. "Any euro rally should prove short-lived." Sutton expects the euro to hit $1.22 by the end of the month. The euro, which fell to $1.2449 in overnight trading, last traded at $1.2496, up 0.2 percent. Against the yen the euro rose 0.4 percent to 99.42 yen. Analysts said market players would be increasingly reluctant to initiate fresh positions ahead of the Greek vote and the euro could stay in a $1.24-$1.27 range. A win for parties opposing the austerity terms of Greece's bailout would leave the country on the brink of bankruptcy and an eventual chaotic exit from the euro. On the other hand, a win for the parties supporting reforms and austerity could provide some relief and see the euro bounce. "Every time we get a piece of good news the market sells into it and looks for some bad news again," said Daragh Maher, currency strategist at HSBC. "But ahead of the Greek elections people will be reluctant to go too short of the euro in case we get some good news, so it will stay quite 'rangy' until then." The result of Greece's election looked too close to call between parties supporting and opposing the international bailout and harsh austerity measures accompanying it. As a worst-case scenario should Athens decide to leave the euro, European officials have discussed limiting the size of withdrawals from ATM machines, imposing border checks and introducing euro zone capital controls. The options market reflected the skittishness among traders with 1-week euro/dollar implied volatility spiking to a six-month high at 14.9 percent as quoted by ICAP, up from 10.8 percent last Friday. LOOKING AT ITALY Underscoring the fear that Spain's bailout would not solve the euro zone's sovereign-debt problem, Austria's finance minister said Italy may need a financial rescue because of its high borrowing costs, drawing a furious rebuke on Tuesday from the Italian prime minister. "The euro has been following euro zone debt yields around," said Geoff Kendrick, currency strategist at Nomura. "As we head into the weekend, given the market is so short on the euro, a positive Greek election outcome could see some profit taking. People do not want to be caught out in that move, hence they are following bond yields around." Spanish yields drew closer to euro-era highs, while the cost of insuring Spanish debt against default jumped. Italian 10-year bond yields also rose. The yen fell after the International Monetary Fund said it was moderately overvalued and there was a chance of further yen appreciation due to Europe's debt crisis. The dollar rose 0.2 percent to 79.56 yen.