NEW YORK (Reuters) - The euro slipped against the dollar on Wednesday, retreating from the seven-week high in the prior session as investors bet the move was too far, too fast even as they remained cautiously optimistic euro zone policymakers are readying action to stem the debt crisis. Expectations have built in recent weeks that the European Central Bank will announce at its next policy meeting on September 6 plans to help lower Spanish and Italian bond yields, which some analysts believe will enable the euro to gain further. Minutes from the latest U.S. Federal Reserve meeting due later on Wednesday were also adding to investor caution. Any hint of monetary easing would weigh on the dollar and benefit the euro but no mention will instead see the euro suffer on lower risk tolerance. "There are a huge amount of (euro) sell orders at $1.2500, about a billion dollars," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York. "We tried to test the upper band and didn't have enough gas." "People will also look at the FOMC minutes to see if there is the possibility of any further accommodation and if there is, there is more softness for the dollar," Schlossberg said. The euro fell 0.2 percent to $1.2447, still close to Tuesday's high of $1.2488, and traders said it was likely to hold above $1.2420, where bids were reported. "The main issue is whether the ECB will start buying peripheral bonds ... We have been seeing a bit of short-covering in the euro over the last couple of weeks on fears of a big bazooka," said Arne Lohmann Rasmussen, head of currency research at Danske Bank. "People are pricing out the risk that the euro zone will implode." Danske forecasts the euro will rise to $1.27 in three months as proactive policy from the ECB eases euro zone debt worries and leads investors to trim hefty bets on the currency falling. Taking a similar view, strategists at Morgan Stanley said in a note to clients that they expect the euro to test $1.26-$1.27 as policy activity gains momentum in coming days. They recommended using any fall towards $1.2415 -- the 38.2 percent retracement of this week's rally -- as a buying opportunity. GREECE Greek Prime Minister Antonis Samaras will meet Eurogroup chief Jean-Claude Juncker on Wednesday and German Chancellor Angela Merkel and French President Francois Hollande later this week. He is expected to broach the idea of giving Greece more time to implement budget cuts. "Any comments that are constructive, giving Greece at least a chance to get an additional bailout package, is something that could support the euro further," said Ulrich Leuchtmann, head of FX research at Commerzbank in London. However, he said the euro may struggle to rise much beyond the mid-$1.20s given numerous risk events looming in September. After the ECB meeting, Dutch elections and a German Constitutional Court ruling on the euro zone bailout fund are scheduled for September 12 and European Union finance ministers meet on September 14 and 15. A British newspaper report on Tuesday supported a weekend German report that the ECB plans to help Spain and Italy reduce their high public debt. But some analysts warned growing speculation about ECB action has lifted demand for the euro but also increased scope for disappointment if the ECB fails to match these expectations. The euro fell 0.2 percent against the yen to 98.64 yen, having hit a seven-week high on Tuesday. The dollar was steady against the yen at 79.24 yen, down from a five-week high touched on Monday. Japan's exports slumped the most in six months in July as shipments to Europe and China tumbled, adding to concerns over global demand after a string of dire trade figures from Asia's export engines. The Australian dollar was down 0.6 percent against the U.S. dollar at $1.0422, though it held above last week's three-week low. Some traders said the fall was partly due to global mining giant BHP Billiton saying it would delay a $20 billion copper project as a result of slowing growth in China. Bad news on China usually weighs on the Australian dollar due to Australia's close trade links with the country.

Source