* Euro upside seen limited ahead of Greek elections * Details of Spain bank bailout deal unclear * Spanish and Italian bond yields rise * EU and German officials say Spain faces supervision By Julie Haviv NEW YORK, June 11 (Reuters) - The euro dropped against the dollar and yen o n M onday as optimism over Spain's bank bailout gave way to unease about the country's debt problems, with markets wary of taking on risk ahead of next weekend's Greek elections. The euro zone agreed to lend Spain, the region's fourth-largest economy, up to 100 billion euros to help prevent a run on banks, offering some reassurance to investors and helping the common currency jump more than 1 percent in Asian trade. But gains were erased during the New York session as traders and analysts said details of the bailout were unclear and concerns remained about Spain's large debt burden, given the country's stagnant economy. EU and German officials said Spain faces supervision by international lenders, contradicting Prime Minister Mariano Rajoy, who insisted the cash came without such strings. "The deterioration in euro sentiment following Spain's bailout news is a clear indication of the extent of negativity surrounding the currency," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington D.C. "The lack of details about the plan quickly saw market optimism fade, pushing yields on Spanish debt higher and that added to negative sentiment," he said. "Uncertainty ahead of Greece's election this weekend is also weighing on the euro." Spanish and Italian bond yields rose sharply as initial market relief over Spain's bank funding deal gave way to doubts. Bondholders are worried that the rescue will weigh on Spain's fast-rising public debt. They also fear that if the euro zone's future permanent bailout fund, the European Stability Mechanism, is used for the rescue, they will be subordinate to official creditors and face losses in any debt restructuring. The euro fell to a session low of $1.2481 and was last down 0.1 percent at $1.2498. Nevertheless, the euro remained well above the near two-year low of $1.2286 hit earlier this month. "While this is good news for Spanish banking stocks and good news in the short term, I'm not certain it solves Spain's problems," said Simon Derrick, head of currency research at Bank of New York Mellon. "Agree a bailout for Spain and the best you get is a 100-odd point rally in euro/dollar. People recognise this is not a silver bullet. I think the euro will weaken slowly over the next couple of days." Against the yen, the single currency, which hit its highest level in more than two weeks in the overnight session, last traded down 0.1 percent at 99.38.GREEK ELECTIONS Traders said any euro bounce should give way to profit-taking before the June 17 Greek elections. A win for parties opposing the austerity terms of the country's international bailout could lead to Greece leaving the euro. Unease about the euro was evident in the options market, with one-month euro/dollar risk reversals biased toward euro puts trading at 1.9 percent, versus 1.8 percent on Friday. Sentiment, however, has improved since the start of the month when it traded at 2.2 percent. Bets against the euro surged to a record high in the week to June 5, while net long dollar positions extended gains, according to the Commodity Futures Trading Commission. Against the yen, the dollar last traded up 0.1 percent at 79.52.

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