* Euro shorts hit record high in week ended May 22 * USD/JPY exporters give up on 80.00; 79.00 key support * BOJ won't keep easing "automatically"-minutes By Antoni Slodkowski TOKYO, May 28 (Reuters) - The euro bounced off two-year lows on Monday after Greek conservatives topped opinion polls ahead of another general election, triggering covering of massive short positions on hopes Athens may agree to austerity steps and remain in the euro. A conservative victory on June 17 would raise the odds that Athens will form a government that would agree to harsh bailout terms by the European Union and the International Monetary Fund, enabling it to stay in the currency club. These expectations saw the euro jump 0.6 percent to $1.2588 , pulling away from Friday's $1.2495, its lowest level since July 2010. Some traders thought it may get squeezed even higher if speculators try to hunt stop losses lined above $1.26. But most investors were pessimistic over how long the rebound would last, as they continued to worry about the lack of growth in Europe and the fragile health of Spanish banks - concerns that have conspired to drag the euro down 5 percent in May. "Greek polls are certainly giving some respite to the euro, but we're still not even back to $1.26 and Spain looms large with its problems, so I wouldn't get overly excited about this rally," said Koji Fukaya, director of global foreign exchange research for Credit Suisse Securities in Tokyo. He added that short-covering was a big factor behind the rebound after speculators bolstered their euro bearish bets to record highs in the week ended May 22, while dollar longs rose to the highest since at least mid-2008. The sentiment towards the euro turned even more negative as the state takeover of Spain's fourth-largest lender, Bankia , intensified worries that the rising cost of supporting banks may push the euro zone's fourth-largest economy to seek an international bailout. The bank last week asked for rescue funding of 19 billion euros. On top of that, Spain revealed that its highly indebted regions faced 36 billion euros of debt refinancing bills this year, way above the previously stated 8 billion. "Heading into the Greek elections we'll fluctuate a lot. Because the market is very, very short euro, reactions to any positive news may be bigger than those to negative news," said Mitul Kotecha of Credit Agricole Corporate and Investment Bank. "That said, even if we get some good news from Greece, the weight of bad news elsewhere is likely to keep any bounce in the euro short-lived," he said. A sustained break of 1.25 would target the June 2010 low of $1.1876 with not much in the way of technical support this side of $1.2000. For now, traders cite the former support at 1.2625 as the nearest resistance level for the currency. GAINING GROUND With the euro gaining some ground, the dollar index, which tracks its performance against a basket of major currencies, came off its highest level since September 2010, hit on Friday, to last stand at 82.000. The dollar also lost 0.3 percent against the yen, last fetching 79.40, with traders citing dollar-selling by Japanese exporters who had missed a chance to sell it above 80.00 yen and are now doing so at lower levels. The yen was further supported as the Bank of Japan minutes suggested a pause in easing, by complaining of "misunderstanding" in markets that they will keep loosening automatically until 1 percent inflation was in sight. The Australian dollar gained 0.9 percent to $0.9850, compared with around $0.9765 in late local trade on Friday. The bounce has pulled the Aussie further away from a six-month low of $0.9690 hit last week. Major releases from the U.S. this week include consumer confidence, gross domestic product and on Friday the May non-farm payrolls report, which could provide clues on whether the economy is running out of steam or has simply hit a soft patch. U.S. financial markets will be closed on Monday for the Memorial Day holiday. (Additional reporting Masayuki Kitano in Singapore and Hideyuki Sano in Tokyo; Editing by Jacqueline Wong & Kim Coghill)

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