Euro rises vs dollar, but uncertainty caps gains * Investors hopeful of deal on Greece at euro-zone summit * Contagion risks from euro-zone debt crisis seen remaining (Updates prices, adds comments) (Reuters) - The euro rose against the dollar on Wednesday on cautious optimism that euro-zone leaders may reach a deal to ease Greece's debt problems, though concerns remained that the fiscal crisis could spill over to other countries in the region. French ministers said on Wednesday that European leaders were less divided than the media was reporting and were likely to reach an accord at the summit that will alleviate Greece's debt woes. [ID:nLDE76J0CA] That still left the euro vulnerable to signs the debt crisis could still spread to larger countries like Italy and Spain but for now, investors focused on the positive. "There definitely is a pricing in of a deal" in the euro zone, said John McCarthy, director of currency trading at ING Capital Markets in New York. Signs of progress on a U.S. budget deal also prompted a rise in risk tolerance. A group of Democratic and Republican senators presented a new plan late on Tuesday that could revive stalled U.S. debt talks and avert a default by the world's biggest economy. [ID:nN1E76H1Y0] The euro EUR= was last up 0.3 percent at $1.4198. Euro-zone sources said a summit of euro-zone leaders would be delayed slightly to allow time for a deal to be reached on private-sector involvement in shouldering the costs of a Greek debt resolution. [ID:nB5E7IB01F] Banks are poised to offer a complex Greek rescue proposal, which excludes a bank levy, to a meeting of euro-zone leaders on Thursday, industry sources said. The proposal from private- sector creditors to Greece, being coordinated by the Institute of International Finance, would include a range of options but may not be the quick fix many are seeking. [ID:nL6E7IK0OE]. RISKS AHEAD Analysts and traders do remain concerned that a second Greek bailout may only give temporary relief for the euro as wider debt problems on the euro zone's periphery would remain. "There is a feeling that there will be some kind of deal on Greece at the summit, but there are no guarantees this will ease concerns about the crisis spreading to Italy or Spain and people are unlikely to push euro/dollar too much higher," said Niels Christensen, currency strategist at Nordea in Copenhagen. Commodity-linked currencies were supported by better appetite for risk, with the Australian dollar up 0.1 percent at $1.0738 AUD=D4. The New Zealand dollar NZD=D4 was at $0.8548, still near Tuesday's post-float high of $0.8573. The Canadian dollar CAD=D4 reached its highest since early May, helped by Chinese oil producer CNOOC Ltd's (0883.HK) saying it would buy Canada's Opti Canada Inc. (OPC.TO). [ID:nL3E7IK12D] The dollar fell 0.4 percent against the yen to 78.76 yen JPY=, having backed off an intraday high of 79.31 yen, according to Reuters data. There was little movement in foreign-exchange markets after a report showed sales of previously owned U.S. homes unexpectedly fell in June to touch a seven-month low as cancellations of pending contracts surged. "This is a look at what's really going on in the housing market and we can see the market is still quite anemic," said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey. "It's going to be a multi-year process to get out of this." He said the dollar's only real chance at a rally would probably come if the EU meeting fails to ease euro-zone debt fears and the euro sells off. (Reporting by Nick Olivari; Additional reporting by Steven C Johnson in New York and Jessica Mortimer in London; Editing by Jan Paschal)

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