* Euro off four-month low, helped by short-covering * Speculators' euro short positions hit record high * Markets cautious ahead of EU summit this week By Anirban Nag LONDON, May 21 (Reuters) - The euro steadied against the dollar on Monday, rising above last week's four-month low as some investors took profit on recent bearish bets, although concerns about financial turmoil in Greece and Spain kept the common currency vulnerable. Speculators who had piled up a record amount of bets against the euro cut some of those positions, giving it a respite from this month's relentless selling. The euro was steady at $1.2773, well above Friday's low of $1.2642 hit on trading platform EBS. A break below the nearby 2012 low of $1.2624 would take the shared currency back down to levels not seen since August 2010. Traders cited stop loss orders above $1.2835 and offers ahead of that level, which were likely to see the euro struggle to make strong gains. "It is a bounce, but I ...still think it is a sell on rallies, not just against the dollar but also the yen," said Jeremy Stretch, head of currency research at CIBC World Markets. "That 2012 low is still the target and the euro would need a catalyst for that. That could come if the informal (EU) leaders' meeting this week offers no consensus (on tackling the euro zone debt crisis)." French President Francois Hollande and some other euro zone leaders are expected to promote the idea of mutualised European debt at an informal summit in Brussels on Wednesday, although Germany reiterated its opposition to the idea on Monday. The euro zone crisis has escalated since inconclusive Greek elections on May 6 raised questions over whether Greece will stay in the bloc. Concerns about the fragility of the Spanish banking sector have also weighed on sentiment. These factors were expected to encourage investors to put on more bearish bets against the common currency, with many market players unconvinced by firewall measures already in place to stem contagion from a possible Greek exit. RECORD SHORT POSITIONS Those worries prompted investors to dump the euro in recent weeks with many seeking the relative safety of the dollar, the yen and sterling. The euro regained some of that ground on Monday, rising 0.3 percent against the yen to 101.30, having hit a 3-1/2 month low 100.219 yen on Friday. The U.S. Commodity Futures Trading Commission said on Friday speculators' short euro positions climbed to 173,869 contracts, the highest on record, while their bets in favour of the dollar against other currencies also rose to a high not seen since at least mid-2008. "The outlook for the euro is still extremely vulnerable," said Jane Foley, senior currency strategist at Rabobank. "The market is getting a bit more optimistic ahead of the EU summit and looking for signs policymakers may announce some policies that will support the system. But they won't be able to solve the crisis in one fell swoop." The euro drew little support from Saturday's comments on growth from leaders of the G8 leading industrialised nations, which markets viewed as short on detail and long on rhetoric. Chinese Premier Wen Jiabao called on Sunday for additional efforts to support growth, but concerns about the slowdown in emerging economies remained. With sentiment fragile across global markets, investors preferred the safe-haven dollar, which rose 0.4 percent to 79.26 yen, well above a three-month low around 79.00 set on Friday.