* Short-covering lifts euro, but gains seen limited * Italy, Spain debt auctions, ECB meeting loom * Aussie, kiwi hit new highs against euro * Stiff resistance for euro seen at $1.30 LONDON, Jan 10 (Reuters) - The euro rose versus the dollar on Tuesday, recovering after hitting a 16-month low the previous day as investors took profit on hefty short positions, but gains were seen limited before debt auctions later this week. The euro was up 0.25 percent at $1.2798, off a high of $1.2810. Traders said demand from macro accounts, as well as bids from central banks starting around $1.2750, helped trigger stop-loss orders above the Asian high of $1.2797. The latest Commodity Futures Trading Commission data showed euro net short positions at a record and analysts said the currency would benefit from bouts of short-covering. Some saw scope for the euro to rise to around $1.29 but it was expected to face stiff resistance ahead of $1.30, with investors said to be looking to sell the currency on any rally. The euro could come under renewed pressure before bond auctions on Thursday and Friday from Spain and Italy, the two countries at the centre of the euro zone crisis. ID:nL6E8C60WA] The euro has support just below $1.2600, a 76.4 percent retracement of its rally from June 2010 to May 2011 and its trough on Aug. 24, 2010. "Every move higher in euro/dollar will be a reason to put on new shorts. I can't see it moving up much, it will be difficult to get above $1.30 again," said Niels Christensen, currency strategist at Nordea in Copenhagen. "It's still a weak and vulnerable euro going forward, with no sign of a quick solution to the debt problems in the euro zone". A European Central Bank meeting on Thursday may weigh on the euro. The bank is expected to press governments to step up their efforts to tackle the euro zone debt crisis as it leaves rates on hold for now. "The ECB's tone will probably support expectations of a rate cut in February," said Adam Cole, head of FX strategy at RBC. In the short term, however, he said the euro may benefit from more short-covering as investors unwound previous positions, "conceivably taking it the other side of $1.30". BLEAK OUTLOOK The rebound in the euro led the dollar to retreat 0.3 percent against a basket of major currencies to 80.824, having hit 81.470 on Monday, its strongest in more than a year. Short-covering also helped lift the euro against the yen . It rose 0.3 percent to 98.36 yen, moving away from an 11-year trough of 97.28 yen. The euro's recovery followed a more than 3 percent fall versus the dollar from a Jan. 3 high of $1.3077 to Monday's low. Analysts remain negative on the euro, and most expect it test new lows soon. UBS recommended a short euro/dollar position with a target of $1.2250 and a stop at $1.3050. "We now expect the main (ECB) refinancing rate to be cut to 0.50 percent by the end of the first quarter, undermining the currency's relevant yield differentials, which have been a source of support," they said in a note. The higher-risk Australian dollar gained 0.9 percent to $1.0328 and hit an all-time high against the euro . The euro also slipped to a record low against the New Zealand dollar. Data showed China's exports and imports grew at their slowest in more than two years in December. But it raised expectations of further monetary easing from China, lifting stocks and the Australian dollar. Against the Swiss franc, the euro edged up 0.1 percent to 1.2130 francs, having earlier fallen to 1.2107. The franc gained after the head of the Swiss central bank quit on Monday, prompting talk the market could test the bank's resolve to cap the currency at 1.20 euros.

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