* Signs of improvement in euro zone prompts short-covering
* Euro up by default as dollar, yen under pressure from easing hopes
* Shanghai share jump helps to lift risk appetite, hurt yen
* Euro/Swiss also at 11-week high as franc hit by negative deposit rate
By Hideyuki Sano
TOKYO, Dec 5 The euro climbed to a seven-week high against the dollar on Wednesday, boosted by efforts to tackle the debt problems of Greece and Spain, and as the greenback came under pressure from expectations of more bond buying by the Federal Reserve.
The single currency could soon test its September peak, although many traders are not convinced it has traction to make a clean break from that level, given the fragile state of the euro zone economies.
"Things seem to be improving quite rapidly in Europe. Spain is now injecting funds to its banks, which were at the heart of the problems. Greece looks on its way to secure funding. The crisis appears to be heading for an end for now," said Takako Masai, manager of forex at Shinsei Bank.
The euro rose to as high as $1.3117, a level not seen since mid-October and last stood at $1.3110, up slightly from late U.S. levels and within striking distance of its September high of $1.31729.
Greece announced this week better-than-expected terms for its debt buyback, fueling optimism it will continue to receive international aid to avoid a default.
Spain's formal request for European funds to recapitalise its banks this week also helped boost confidence in the single currency.
In addition, many market players expect the U.S. Federal Reserve to unveil a fresh bond purchase scheme to replace Operation Twist, in which it buys long-term maturities while selling shorter bonds, at its policy meeting next week.
Since September the Fed has been buying a total of $85 billion in long-term securities each month to help push down borrowing costs. Operation Twist which is part of that programme expires at the end of the year.
"The Fed is likely to take fresh steps to replace the Operation Twist. Speculation of more aggressive easing in Japan is all over the places and Australia also cut rates. By default the euro rose," said Makoto Noji, senior strategist at SMBC Nikko Securities.
In contrast, the European Central Bank is widely expected to keep rates on hold at its policy meeting on Thursday.
YEN UNDER PRESSURE
The euro also hit a 7 1/2-month high of 107.91 yen with the investors expecting a more dovish stance from the Bank of Japan if the main opposition party wins a Dec.16 election as seems likely. The single currency last stood at 107.80 to the yen, up 0.6 percent.
The yen also weakened against the dollar, which rose 0.5 percent to 82.27 yen, helped by improved risk appetite.
The euro also rose to a 11-week high against the Swiss franc, benefiting from a selloff in the Swiss currency after Switzerland's largest banks said earlier in the week they would charge fees and pay negative rates on some franc deposits.
The single currency rose 0.1 percent to 1.2146 francs , having risen to an 11-week high of 1.2153 at one point on Wednesday.