(Reuters) - The euro briefly hit a 2-week high on Wednesday, continuing its correction from a four-year low versus the dollar on improved tolerance for risk, but lacking momentum to tackle nearby resistance levels. The single currency made a quick show above Tuesday's two-week peak at $1.2350 in early dealing, but by 0940 GMT it had slipped back to trade with slight losses at $1.2300. "The euro's recent rally can continue. It's been tracking the improvement in risk and the higher-yielding currencies, but for now there's nothing to provide much of an impetus to take it significantly higher," said Stuart Bennett, senior FX strategist at Credit Agricole CIB. US stocks had rallied strongly on Tuesday .SPX, but European markets couldn't replicate the move and were trading close to flat on the day .FTEU3. Analysts said the recent recovery in the euro could be classed as a correction within the established downtrend. "I see the recent rally as a correction from the four-year low at $1.1876 which doesn't negate the downtrend. There is potential for the correction to continue however as there are a lot of stale short positions out there," said Michael Hewson, currency analyst at CMC Markets. Traders said worries over the credit outlook for Spain had served as a reminder that the euro remained vulnerable, as the premium investors demand to hold 10-year Spanish government bonds over German benchmarks hit a euro lifetime high. Investors have fretted for more than a week about Spain's credit markets and comments from government sources urging action to free up bank-to-bank lending. On Tuesday, investors had set aside concerns about the euro zone financial sector and soft economic data to buy riskier assets, higher-yielding currencies and the euro, looking on the bright side after Spain raised 5.2 billion euros at a debt auction and Belgium netted 2.5 billion euros. Technical analysts were turning increasingly positive on the outlook for the single currency. "We look for the correction higher to extend to $1.2445/1.2570 - the 2009 low and the 38.2 percent retracement of the move down from April," analysts at Commerzbank said. The euro was up around 0.4 percent versus the yen at 113.10 yen, as the Japanese currency weakened. The dollar was slightly stronger at 91.68 yen, in the middle of a four yen range it has held since mid-May. The dollar index .DXY was up 0.3 percent at 86.234, hovering above support near 85.85 which was a low it marked on May 28. SNB MEETING LOOMS The dollar slipped to its lowest in a month against the Swiss franc at 1.1277 francs. The franc also strengthened versus the euro, with Thursday's SNB policy meeting looming. Options traders said front-end euro/Swiss vols were higher, with the market wary of getting caught short into the SNB, given illiquid moves seen in recent weeks. Skew, which gives a measure of the bias in the options market toward puts or calls for a currency, was also under pressure, due to increasing increase in topside strikes. The Australian dollar held near the month's highs against both the dollar and the yen but failing to capitalize on gains of 1 percent in Asian shares. It was slightly softer on the day at $0.8638, not far below a one-month high near $0.8670 struck on Monday.

Source