* Eyes on confidence vote in Greek parliament
* Traders bet on positive outcome supporting euro, but gains seen limited
* Euro/dollar options still suggest wariness over euro downside
By Jessica Mortimer
LONDON, June 21 The euro rose on Tuesday before a parliamentary confidence vote in Greek Prime Minister George Papandreou and his new cabinet, with investors betting that the vote would pass.
This left traders wary of holding short euro positions going into the decision, due later in the day, but analysts said any knee-jerk gains in the single currency after a positive vote would be short-lived given the hurdles ahead.
The euro was up 0.3 percent at $1.4360, stalling ahead of reported offers around $1.4380-85 and $1.4400-05. Analysts said it was unlikely to surpass $1.4500, with resistance at its 55-day moving average around $1.4413 and its June 15 high of $1.4451.
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 to secure a 12 billion euro lifeline from the European Union and International Monetary Fund and avert a sovereign debt default.
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.
"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.
"But 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".
Earlier, stop loss orders were triggered as the euro broke above $1.4350, allowing it to extend its recovery from a three-week low of $1.4073 hit last Thursday.
If the confidence vote is not passed, traders said the euro would probably slide sharply, especially since investors are not positioned for this outcome. The next hurdle will be the Greek vote on new austerity measures on June 28.
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.
"Market players are starting to believe that euro zone policymakers, especially German policymakers, will try to avoid a hard landing for Greece," said Makoto Noji, a senior strategist at SMBC Nikko Securities in Tokyo.
BETS ON EURO FALLS
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' . 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 stood around 13 percent, off a high around 14 percent hit last week but well above 11 percent struck early this month.
"It's all driven by short-term players. No one is buying the euro to hold it for a long time," said Tsutomu Soma, manager of foreign bonds at Okasan Securities in Tokyo.
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.
But the impact was mitigated as Fitch also said it would review its rating on the United States if Congress did not agree to raise the country's debt ceiling by Aug. 2.
This helped push the dollar down 0.3 percent against a basket of currencies to 74.808. 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 euro was flat against the Swiss franc at 1.2103 francs , though it kept some distance from a record low of 1.1946 hit last week.
The Australian dollar dipped slightly to $1.0572 after the minutes of the Reserve Bank of Australia's June meeting showed the bank thought recent data had not added any urgency to the need for tightening. (Additional reporting by Hideyuki Sano) Currency bid prices at 0757 GMT. All data taken from Reuters with percent change calculated from the daily U.S. close at 2130 GMT.
Last US Close % Chg YTD % 2010
20 Jun. Close
----------------------------------------- Euro/dlr 1.4367 1.4307 +0.42 +7.40 1.3377 Dlr/yen 80.19 80.26 -0.09 -1.18 81.15 Euro/yen 115.20 114.82 +0.33 +6.05 108.63 Dlr/Swiss 0.8432 0.8458 -0.31 -9.67 0.9335 Stg/dlr 1.6224 1.6204 +0.12 +4.01 1.5599 Dlr/cad 0.9766 0.9793 -0.28 -2.02 0.9967 Aus/dlr 1.0582 1.0580 +0.02 +3.71 1.0203 NZD/dlr 0.8135 0.8100 +0.43 +4.42 0.7791 Euro/Swiss 1.2114 1.2106 +0.07 -2.99 1.2488 Euro/stg 0.8854 0.8828 +0.29 +3.29 0.8572 Euro/sek 9.1676 9.1657 +0.02 +2.08 8.9809 Dlr/nok 5.5161 5.5385 -0.40 -5.25 5.8218
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