* Euro bounces on short-covering, stops cited above $1.3420 * Some hopes of action ahead of Ecofin meeting, EU summit * But investors wary, focus on debt auctions * IMF says no talk with Italy on financing By Jessica Mortimer LONDON, Nov 28 (Reuters) - The euro rebounded from a 7-week low on Monday on hopes of progress on its sovereign debt crisis ahead of a European Union summit next week, although investors remained sceptical that decisive action to resolve the turmoil will be swift in coming. Later-denied reports about IMF funding for Italy initially encouraged investors to unwind bearish positions in the single currency, though there was little faith that would lead to more substantial gains. Analysts said any further rallies would likely to be sold into. "It has become relatively commonplace in recent months for the euro to do well in the days leading up to an important meeting on the hope that something tangible will emerge," said Michael Derks, currency strategist at FXPro. The euro was up 1 percent at $1.3367, having hit a high of $1.3399. Traders said buying by leveraged investors helped trigger stop loss orders through $1.3355 and $1.3370. More stops were cited above $1.3420. FXPro's Derks added that hefty short positions in the euro had been built up towards the end of last week which were now being unwound, encouraged by thin trading conditions and investors adjusting positions ahead of month-end. Currency speculators increased their bearish bets against the euro in the latest week to Nov. 15. Steady selling drove the currency down 7 percent from a high of $1.4248 reached on Oct. 27 to a trough near $1.3213 on Friday. Ahead of a euro zone finance ministers' meeting on Tuesday and a Dec. 9 EU summit, officials said Germany and France were exploring radical methods of securing deeper and more rapid fiscal integration among euro zone countries. Market participants took some encouragement from an unsourced report in Italian daily La Stampa that 600 billion euros could be made available to Italy, lifting European shares , even though this was denied by an IMF spokesperson. A German media report also said Germany was considering issuing joint bonds along with other triple-A rated countries, though Berlin's finance ministry also denied this. FOCUS ON AUCTIONS U.S. investment bank Morgan Stanley told clients to be wary of shorting the euro in the near-term but maintained their medium term bearish view. Other analysts pointed to the risk from debt auctions later this week that follow high profile disappointments at some recent sales. Belgium had to pay a much higher price to issue 10-year debt on Tuesday. Sales to follow by Italy, France and Spain all have the potential to highlight the severity of the funding problems facing many euro zone countries. "The euro looks very vulnerable in a week where there is an awful amount of (debt) supply from euro zone countries. Trade will be directional and will be based on how the response is to these auctions," said Jane Foley, senior currency analyst at Rabobank. Italian 10-year spreads over German bunds narrowed on Monday with dealers citing support from the European Central Bank, but overall sentiment towards euro zone assets remains bearish with investors seeking a comprehensive and quick solution from policymakers to contain the debt damage. The latest bounce in the euro saw the dollar index fall 1 percent to 78.763, retreating from a two-month peak of 79.702 set Friday. Against the yen, the dollar was steady at 77.76 yen while it lost around 1 percent against the Swiss franc to trade at 0.9215 francs. Commodity currencies outperformed the euro, with the Australian dollar jumping more than 2 percent on the day to $0.9922, having hit a one-week high of $0.9955. The New Zealand dollar was also up 2 percent at $0.7543.

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