FOREX-Euro firms on Greek rescue speculation

* Investors eye EU meeting for potential Greek support

* Weight of euro positioning forces short squeeze

* Overall euro sentiment still negative

(Adds quotes, detail)

By Neal Armstrong

LONDON, Feb 9 (Reuters) - The euro rose on Tuesday, lifting further off a recent 8 1/2-month low against the dollar, as market speculation that a bailout of Greece could soon be organised prompted a squeeze of vulnerable short positions.

Talk of a possible rescue for Greece emerged after officials at the European Central Bank and the Reserve Bank of Australia said ECB President Jean-Claude Trichet was cutting short his visit to Australia to attend a Feb. 11 European Council meeting on the ecomomy. [ID:nSGE61801C]

But a spokesman for Trichet said the ECB chief had chosen an earlier flight from a meeting of central bankers for logistical reasons. This caused the euro to pare gains briefly. [ID:nLDE618155]

Analysts said the euro's rise also reflected unwinding of what was seen as quite extreme positioning, with the latest CFTC data showing a build-up of short euro positions. [ID:nN05162244]

"The extent of positioning has made the euro more sensitive, so that speculation of something happening with Greece has allowed it to rebound," said Ian Stannard, currency analyst at BNP Paribas.

"But overall the picture is still very negative for the euro and any rebound in euro/dollar is providing a selling opportunity," he said.

For a graphic on euro positioning, click on

http://graphics.thomsonreuters.com/0210/EZ_ERCFTC0210.gif

At 1242 GMT the euro <EUR=> was up 0.7 percent on the day at $1.3760, with traders saying the currency's gains accelerated after going through stops at $1.3750.

The euro was firmer versus the yen with gains of around 1.3 percent at 123.53 yen <EURJPY=R>. It fell to its lowest in nearly a year on Friday as sentiment on the euro zone currency deteriorated further but picked up some of the lost ground on Monday.

"We are seeing a squeeze of some short euro positions which were established at low levels as market speculation of a Greek bailout is seen as positive in the near term," said Antje Praefcke, currency strategist at Commerzbank in Frankfurt.

However, gains were capped as concerns about the fiscal positions of euro zone states including Greece, Portugal and Spain weighed on sentiment towards the single European currency.

For a graphic on the euro and Greek bond spreads, click

http://graphics.thomsonreuters.com/0210/EZ_EURGR0210.gif

"Overall sentiment towards the euro remains bearish", said HSBC's Paul Mackel.

BERNANKE AHEAD

A slight increase in risk appetite fuelled some paring of yen longs established during last week's bout of risk reduction, with the dollar <JPY=> rising 0.5 percent to 89.71 yen.

The dollar held a softer tone versus a basket of currencies <.DXY>, however, trading down 0.4 percent at 79.957.

On Wednesday, markets will watch congressional testimony by Federal Reserve Chairman Ben Bernanke, who is expected to speak about unwinding of emergency Fed liquidity programmes and implications for the economic recovery.

The yen also pared recent gains versus higher-yielding currencies such as the Australian dollar <AUDJPY=R>, though technical traders said the outlook for this pair remained negative while under the 200-day moving average at 79.34.

(Additional reporting by Jessica Mortimer)