* Aussie, NZ$ bounce from three-week lows on short-covering * Further losses seen as market stays skittish SYDNEY, Nov 24 (Reuters) - A bout of short-covering lifted the Australian and New Zealand dollars from three-week lows on Wednesday, but Europe's debt woes and tensions on the Korean peninsula prevented the pair from climbing too far. Traders said speculators had bet against the Australian dollar after Tuesday's sell-off, but they were caught out by buyers such as Australian exporters earlier Wednesday. That culminated in a short squeeze that led to the bounce in the pair. By late trade, the Australian dollar had crawled to $0.9779, off a three-week low of $0.9708 hit offshore on Tuesday, but still way under the week's high of $0.9955. The Australian dollar had sunk 1.7 percent in Tuesday's offshore trade, making that its biggest daily loss in five weeks and a long way from October's 28-year peak of $1.0183. "The market was caught very short," said David Scutt, a trader at Arab Bank Australia. "But the Aussie dollar is still a sell in rally, rather than a buy on dips." Worries that Europe's debt crisis could spread to claim debt-swamped Portugal and Spain as its next victims, and anxiety over the exchange of fire between North Korea and South Korea had smacked the pair of currencies lower on Tuesday. So focused were investors on Europe and the Korean peninsula that they ignored unexpectedly weak Australian construction spending that would likely put a modest dent in economic growth for the quarter. [ID:nSGE6AM00C] In late trade, the New Zealand dollar was also soft at $0.7622, within spitting distance of a three-week low of $0.7578 hit offshore. Overnight it had suffered its largest daily drop in four months. Loss of support at $0.7630 opens the way to $0.7562 and $0.7492. With no quick solution in sight for the problems in Europe and the two Koreas, some analysts said the market could stay on edge for some time. That would be further compounded by a thin market and would likely leave trade choppy and the pair of currencies prone to further losses. This is especially so in the case of the Australian dollar. Having gained over 9 percent since January, it is one of the best-performing major currencies and investors would likely be tempted to take profits. "It's a skittish market right now," said Grant Turley, an analyst at ANZ. "Most people I talked to this morning were looking to sell." He said the Australian dollar could fall towards $0.9300 by December, but added he did not it would suffer drastic losses. Turley said with Australian interest rates the steepest in the developed world at 4.75 percent, investors would want to hold on to substantial amounts of the currency. (Reporting by Koh Gui Qing; Editing by Ed Davies)

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