* Euro briefly hits 2-week high vs dlr <EUR=> above $1.2350
* Improved risk tolerance supports single currency
* Analysts see upside potential, impetus lacking
(Updates prices)
By Neal Armstrong
LONDON, June 16 (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 1115 GMT it had slipped back to trade with slight losses at $1.2295.
"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 <
>.On Tuesday, investors had set aside concerns about the euro zone to buy riskier assets, higher-yielding currencies and the euro, after Spain raised 5.2 billion euros at a debt auction.
But traders said worries over Spain's debt and credit outlook were keeping the euro vulnerable, as the premium investors demand to hold 10-year Spanish government bonds over German bunds hit a euro life high. [
]Analysts said the recent recovery in the euro looked short-term but could still have further to go.
"I see the recent rally as a correction from the four-year low at $1.1876 which doesn't negate the downtrend," said Michael Hewson, currency analyst at CMC Markets. "There is potential for the correction to continue however as there are a lot of stale short positions out there."
Technical analysts were supportive of 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.
Traders reported demand in the $1.2270 area from Middle-East accounts, with option-related bids then seen at $1.2250.
The euro was down around 0.2 percent versus the yen at 112.40 yen <EURJPY=R>.
SNB MEETING LOOMS
The dollar was slightly stronger at 91.50 yen <JPY=>, in the middle of a four yen range it has held since mid-May.
The dollar index <.DXY> rose 0.3 percent to 86.234, hovering above support near 85.85 which was a low it marked on May 28.
It slipped, however, to its lowest in a month against the Swiss franc at 1.1277 francs <CHF=>. The franc also strengthened versus the euro <EURCHF=R>, with Thursday's Swiss National Bank policy meeting looming.
Traders said option volatility was high, indicating market nerves around the SNB meeting, especially given the currency has shifted in low volumes in recent weeks. Skew, which gives a measure of the bias in the options market towards puts or calls for a currency, was showing less of a bias for a strengthening franc, they said.
The Australian dollar held near the month's highs against both the dollar and the yen. It was slightly softer on the day at $0.8643 <AUD=D4>, not far below a one-month high near $0.8670 struck on Monday.