(Reuters) - The euro hit a one-month high against the dollar on Wednesday, lifted by Moody's rating agency affirming Spain's investment grade credit rating and growing expectation that Madrid will ask for a bailout next month. The Moody's move soothed concerns Spanish debt would be downgraded to junk status, pushing the country's bond yields lower before an auction on Thursday and helping the euro. Although the single currency rallied above resistance around $1.3070, the October 5 high, market players were cautious about its near-term outlook and said it was likely to struggle to break above $1.32 without a definite aid request from Madrid. The euro was last up 0.4 percent on the day at $1.3107, after earlier rallying to $1.3125, its highest since mid-September. Strong resistance was seen at $1.31729, the four-month high set on September 17. "It's supportive that Spain avoided a downgrade but the bigger driver is more expectations that Spain will soon require some form of financial support from Europe," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi. The single currency has been supported in recent weeks by bets that Spain will eventually request a bailout, a move that would open the way for the European Central Bank to buy Spanish debt and help lower Madrid's borrowing costs. The timing of such an aid request, however, remains unclear. Hardman said the euro could squeeze as high as $1.35 after a Spanish bailout request but may falter there if concerns resurface that euro zone policymakers are being complacent in tackling the long-running sovereign debt crisis. Expectations of progress at a European Union summit on Thursday and Friday were low, although some strategists said there was still scope for disappointment. "Our expectation is...that the European summit yet again will be a disappointment and then it (the euro) will go back down," said Callum Henderson, global head of FX research for Standard Chartered Bank in Singapore, adding Spain seemed unlikely to make a formal aid request at the summit. DOLLAR INDEX FALLS The euro also touched a one-month high of 103.51 yen, before trimming gains to trade up 0.2 percent at 103.23 yen. The yen has been held back recently by speculation about the potential for further monetary easing by the Bank of Japan, which holds its next policy meeting on October 30. Market talk about the potential for dollar-buying flows related to Japanese mobile operator Softbank Corp's (9948.T) $20 billion deal to buy U.S. wireless carrier Sprint Nextel Corp (S.N), has also weighed on the yen in recent sessions. The dollar dipped 0.1 percent to 78.80 yen, retreating from Tuesday's one-month high of 78.97 yen. The greenback also fell to its lowest level in a month against a basket of currencies .DXY, at 79.089. Some investors were wary of buying the dollar after Federal Reserve Chairman Ben Bernanke defended the central bank's latest round of monetary easing in a speech on Sunday. The policy, known as QE3, floods the market with U.S. currency and tends to weaken the dollar against other units.

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