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* Euro seen vulnerable after Spanish bailout request
* ECB bond plan buys time, does not solve crisis
* Euro zone growth concerns likely to come to fore
By Nia Williams
LONDON, Nov 5 (Reuters) - Spain's apparent reluctance to seek financial aid means any eventual request may trigger only modest gains in the euro, as investors focus on the currency bloc's gloomy economic outlook.
The European Central Bank unveiled a plan in September to buy the bonds of countries that ask for assistance, dragging Spanish yields down from unsustainable levels and driving the euro to its highest against the dollar since May.
But two months later, and with no sign of a move from Madrid, the wave of optimism that swept the market is fading and investors are again fretting about a potential lost opportunity.
The bond-buying plan was seen as a rare example of decisive action by policymakers to resolve the crisis and the delay in activating the programme has raised concerns they may once again put off painful steps that would be unpopular with voters.
In these circumstances, concern about the euro zone's underlying economic weakness, which was masked by the bond-buying plan, is again to the fore.
"The danger with a request in future is it's more likely to come from a position of weakness when (Spanish) bond yields start to move higher," said Steve Barrow, head of G10 FX research at Standard Bank.
"If Spain had made an immediate request when sentiment towards the euro was more positive we might have anticipated a better reaction."
Bond yields have risen across the euro zone periphery since mid-October, pushed higher by uncertainty over Spain and over whether Greece will secure the aid needed to stop it going bust.
The euro hit a two-month low on Monday before the Greek parliament votes on Wednesday on austerity measures demanded by Athens's lenders. Rejection would see the euro fall as fears grew of Greece leaving.
Many analysts said the single currency could be also vulnerable to selling once the ECB began buying bonds, even if an initial knee-jerk rise followed a Spanish bailout request.
Ian Stannard, head of European FX strategy at Morgan Stanley, said he expected an aid request by year-end that would help the euro, now around $1.28, rise to $1.34 before retreating to $1.25 by mid-2013 as attention switches back to euro zone growth concerns.
Other strategists were more sceptical, saying the euro may struggle to break free of the $1.28 to $1.3170 range where it has traded since mid-September.
Because a bailout request is so widely anticipated, any resulting gains are likely to be fleeting, traders said. Many investors who are upbeat on the euro are likely to have already bought and may be wary of adding more.
The euro has risen 2.5 percent since the ECB announced its bond-buying plan on Sept. 6, and positioning data showed speculators slashed their bets against the euro by nearly 50 percent over the same period.
The options market also suggested the euro would be stuck in a range in the near term. Euro/dollar implied volatility - a measure of expected price swings - is at its lowest since Lehman Brothers collapsed in 2008.
One-month risk reversals - showing the premium charged to lay bets on a euro fall - have declined since September to show only a slight bias for weakness ahead.
"The bailout is already built it. Spot is in gridlock and when people stop buying options it reinforces that sentiment," said Steven Rendon, head of G10 vanilla options at HSBC.
Many strategists expect a bailout request from Spanish Prime Minister Mariano Rajoy before year-end, despite his apparent reluctance to submit to strict conditions from the ECB.
But euro zone unemployment and growth figures have both worsened while markets have been waiting, a reminder that central bank action alone cannot solve the bloc's economic problems. Only feeble growth is expected in 2013.
Some in the market see a risk the ECB's pledge to buy "unlimited" amounts of sovereign debt may fall short of market expectations or face opposition from Germany.
During the now-defunct Securities Market Programme the ECB spent 209 billion euros on buying peripheral bonds. Analysts expect it will have to spend at least that amount again to keep yields in check under the new programme.
"The most critical point for the euro exchange rate will be whether the ECB acts as aggressively as the market has priced in," said Ulrich Leuchtmann, head of FX research at Commerzbank, who said the euro could fall to $1.23 by year-end.
Another concern is that the ECB's promise to back-stop debt markets could inadvertently knock the euro lower.
Standard Bank's Barrow said investors who would normally express concerns about euro zone countries missing budget targets through selling government bonds may be tempted to sell the euro instead. He forecast the euro at $1.15 in six months as recession spreads north into core Europe from the periphery.
Even those investors who believe the single currency will rise as the ECB plan removes the risk of a Spanish default were pessimistic about the euro zone's longer-term growth outlook.
"There's a changing mentality in Europe and pressure on central banks to do more. That ends up supporting zombie economies through money printing," said Clive Dennis, currency manager at Schroders, who is "modestly bullish" on the euro.
"So we work off these debts over a long period of time and there is no growth over a long period of time, but there's no collapse. That's the best case scenario."