* Euro off two-month lows vs dollar in light trading * Gains seen temporary as banks, peripheral debt concerns weigh * Bearish euro positions at records, euro/Swiss franc up By Anirban Nag LONDON, May 28 (Reuters) - The euro recovered from two-year lows on Monday as Greek opinion polls showed parties that favour sticking with the country's international bailout deal gaining support, leading investors to cut some of the record bearish bets against the common currency. Most investors were pessimistic over how long the rebound would last, however, with many fretting about the lack of growth in Europe, the fragile health of Spanish banks and rising borrowing costs for peripheral euro zone countries. These concerns have dragged the euro 5 percent lower so far in May and left it on track for its worst monthly performance since September. Greek opinion polls pointed to victory for the conservative New Democracy party in the June 17 election, making it more likely the next Greek government will stick to bailout terms agreed with the European Union and the International Monetary Fund, enabling Greece to stay in the euro. These expectations saw the euro climb 0.6 percent to $1.2585 , off Friday's trough of $1.2495, its lowest level since July 2010. It hit a session high of $1.2625 as stop-loss orders above $1.2620 were triggered, but robust offers layered at $1.2630/50 will check gains, traders said. Volumes were on the lower side due to a holiday in some parts of Europe, with the U.S. also shut for Memorial Day. "Investors have got a bit exhausted selling the euro in the absence of more negative news," said John Hardy, currency strategist at Saxo Bank. "So we are seeing some consolidation after the euro's sharp drop from $1.33 to around $1.25." Indeed, 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, leaving ample scope for a correction as they cut positions and book profits. "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. Sentiment towards the euro took a knock towards the end of last week 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 and its shares slumped on Monday. 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 euros. All of which drove the yield spread between 10-year Spanish and German government bonds to a euro-era high. TEMPORARY GAINS The euro was supported against the Swiss franc at 1.2020 after Swiss National Bank head Thomas Jordan said that Switzerland is drawing up plans for emergency measures including capital controls in case the euro collapses. He added that he will continue to defend a cap on the franc in the meantime. The euro had jumped to its highest since mid-March on Thursday on rumours that Swiss authorities were planning to impose taxes on bank deposits. 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 82.032, down 0.45 percent on the day. The dollar also lost 0.4 percent against the yen, last fetching 79.35, with traders citing dollar-selling by Japanese exporters who had missed a chance to sell it above 80.00 yen. The yen was further supported as minutes of the Bank of Japan's last meeting suggested a pause in easing. The Australian and New Zealand dollars jumped more than 1 percent against the dollar. The Aussie was bolstered by buying from real money investors and corporates, which helped it pull away from a six-month low of $0.9690. Morgan Stanley recommended investors sell the euro against the Aussie as economic conditions, especially in core euro zone, could deteriorate and investors have not fully priced in further ECB easing. The Aussie, on the other hand, could be supported by any near-term improvement in risk appetite. The bank targets the pair to drop to A$1.2570 from around A$1.2740 currently. (Additional reporting by Antoni Sladkowski; Editing by Hugh Lawson)

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