* Euro firms vs dollar on option-related buying * Talk of U.S. bank betting on rise to $1.2675 * Dollar awaits signals from Bernanke later this week By Nia Williams LONDON, Aug 28 (Reuters) - The euro rose on Tuesday on bets the European Central Bank would take decisive action to tackle the debt crisis in coming weeks, although gains were seen limited in the absence of concrete details. Market players also trimmed long dollar positions after a media report flagged the possibility of a downgrade to the U.S. credit rating. That added to investor caution in the run-up to a meeting of central bankers at Jackson Hole, Wyoming, beginning on Friday. Any hints from Federal Reserve Chairman Ben Bernanke, who speaks on Friday, that policymakers are close to introducing more U.S. monetary easing would be likely to weigh on the dollar. Traders said liquidity was thin and that the euro's gains were fuelled by a large U.S. investment bank buying a one-month euro/dollar option with a strike price at $1.2675, suggesting the euro could rise to those levels in coming weeks. The euro rose 0.4 percent to $1.2547, close to last week's peak of $1.2590. Traders said automated stop loss orders were triggered at $1.2530, adding to euro strength. "There's a very large euro call (option) that has been the catalyst for the rise but I think we will play the ranges this week," said Richard Wiltshire, chief FX broker at ETX Capital. "Everyone will sit on their hands ... until we get some kind of interest from Jackson Hole. Negative news from the euro zone seems to have abated a little bit." Wiltshire said the euro was likely to trade within a narrow range between $1.2450 and $1.26, just below resistance at the 100-day moving average. Analysts said the euro's recent rally since European Central Bank chief Mario Draghi said he would do whatever it took to preserve the euro, appeared to be waning with details of the ECB's scheme to buy peripheral euro zone debt still uncertain. But the dollar has came under pressure against most major currencies, including the euro, since minutes last week of the U.S. Federal Reserve's last policy meeting sparked expectations it may start a fresh round of stimulus next month. "The euro's inability to rise above $1.26 suggests there is a lot uncertainty going into the Jackson Hole symposium," said Adam Myers, senior currency strategist at Credit Agricole. "It is difficult for the U.S. dollar to weaken unless there is a clearer direction from Bernanke. So until then, the euro will be trapped in a range." Draghi was also scheduled to speak at Jackson Hole, but cancelled his appearance on Tuesday, citing a heavy workload. Some market players said speculation the ECB was working on details of a new bond-buying programme aimed at lowering Spanish and Italian yields would support the euro. Germany's powerful Bundesbank opposes bond buying, although top ECB official Joerg Asmussen said on Monday that policymakers would tailor the new plan to dispel concerns it funds governments. AUSSIE PRESSURED The dollar fell 0.1 percent to 78.63 yen. Investors usually buy the safe-haven yen during uncertainty about the global economy or heightened financial market stress. But in a sign of strong expectations of range-bound trade, implied volatilities on dollar/yen options remained around 6.5 percent, one of the lowest levels in recent years. While the yen made fresh gains, the commodity-linked Australian dollar hit a fresh five-week low of $1.0345. Sharp drops in the price of iron ore, coal and other commodities largely exported to China are adding to worries, although Australian Treasurer Wayne Swan dismissed concerns the declines will weaken government revenues. The Aussie also hit a one-month low of 81.25 yen, and a seven-week low of A$1.2098 per euro.

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