FOREX NEW YORK COMPANIES

* But traders wary before ECB policy meeting

* Aussie jumps as Q1 GDP well above forecasts

By Jessica Mortimer

LONDON, June 6 (Reuters) - The euro rose on Wednesday as investors cut hefty short positions, though concerns about Spain's troubled fiscal situation and the possibility of a rate cut by the European Central Bank could limit its rise.

The euro recouped losses suffered on Tuesday after a Spanish minister warned the country was losing access to credit markets, helped in part as unexpectedly strong Australian growth data lifted the Australian dollar and other riskier assets.

G7 finance ministers took no immediate steps to soothe fears over Europe's debt problems on Tuesday but did discuss policy responses, including "progress towards financial and fiscal union in Europe," the U.S. Treasury said.

Analysts said any move towards closer financial integration would boost the euro, but progress is likely to be very slow, leaving many traders looking to sell the euro on rallies.

However, the dollar also remained under pressure after weak U.S. jobs figures last week sparked talk that the Federal Reserve could resort to a fresh bout of quantitative easing.

"Euro/dollar is likely to squeeze higher but people will come in and sell rallies ... A one cent rally on the day would be a good opportunity to fade it," said Paul Robson, currency strategist at RBS.

Most in the market expect the ECB to keep interest rates at 1.0 percent, but there is a risk policymakers will opt to cut rates to boost the euro zone's fragile economy. A rate cut would probably weigh on the euro.

The euro was up 0.6 percent against the dollar at $1.2527, pulling away from a two-year low of $1.2288 plumbed last Friday. But traders said any gains in the currency were likely to run into offers up to $1.2540.

With recent data showing speculators holding record short euro and substantial long dollar positions, analysts saw room for the euro to gain as they trim their bearish euro trades.

But the euro could stall ahead of chart resistance at $1.2545, the 76.4 percent Fibonacci retracement of its decline last week, after it failed to breach that level on Tuesday.

SPAIN WORRIES

Concerns are growing that Spain could resort to requesting international aid to help restore health to its ailing banking sector. There is also a risk that Greek elections later this month could lead to Greece leaving the euro.

On Tuesday Spain's treasury minister Cristobal Montoro said the country was losing access to funding markets.

Sentiment was not helped as Moody's Investors Service cut the credit ratings of several German banks on Wednesday, citing the risk of further shocks from the debt crisis.

"Bleak as the euro area outlook is, it could easily get worse after the Greek election on 17 June and there may be an argument for the ECB keeping its powder dry," said James Nixon, chief European economist at Societe Generale.

"We believe the ECB is increasingly concerned by the moral hazard actions. Each time it intervenes it merely eases the pressure on Europe's political leaders."

Against the yen, the euro rose more than 1 percent to 99.14 yen, away from Friday's 11-year low of 95.59 yen.

The higher-yielding Australian dollar, which suffered a drop of over 6 percent against the U.S. dollar last month, jumped 1.3 percent to $0.9866 after data showed Australia grew well above expectations in the first quarter.

This took it well above Friday's 8-month trough of $0.9581.

The U.S. dollar rose by 0.5 percent against the safe-haven yen to 79.15 yen, helped after Japan warned it was ready to step in to curb the yen's appreciation.

* Markets still discounting ECB rate cuts in 2012

* Bets may pile up again if Spanish, Greek worries remain

By Marius Zaharia

LONDON, June 6 (Reuters) - Short-term euro zone interest rates rose slightly on Wednesday after the European Central Bank failed to flag it was ready to ease monetary policy, but markets are still pricing in a large probability the bank will cut rates later this year.

The ECB kept its refinancing rate unchanged at a record low of 1 percent and the deposit facility at 0.25 percent and President Mario Draghi warned his bank cannot make up for other institutions' lack of action.

This disappointed markets, which had expected him to at least send out a signal that more easing was forthcoming.

"From the tone of it, as of today we cannot expect any significant measure in July because he looked very defiant and imperturbable - the ball is very much in the court of the politicians," BNP Paribas rate strategist Matteo Regesta said.

However, rate cut bets have not been taken off completely.

Regesta estimated that the forward overnight euro zone interbank EONIA rate markets - which moved 1-3 basis points higher across the 2012 curve after Draghi's speech - was still pricing in 24 percent probability that the deposit facility rate will be slashed in half in July.

For the end of the year, a December EONIA of just over 23 basis points discounted a 66 percent probability of that happening, compared to some 80 percent at the end of last week.

Euribor futures also sold off a few ticks after Draghi's speech, implying expectations for higher fixings of three-month Euribor rates in the future.

The December Euribor contact was 3 ticks lower on the day and also compared with levels seen earlier in the session at 99.43, implying a 0.57 percent Euribor fixing in the last month of the year versus Wednesday's 0.663 percent.

After May's ECB meeting, which also disappointed markets waiting for more central bank easing, the December contract sold off to as low as 99.29, but it was bought back in the past few days as rate cut bets have been put back on the table.

Analysts say the same thing could happen next month if the conditions that led to speculation the ECB could cut interest rates on Wednesday are still in place.

Tensions over Spain's stricken banking sector are rising and the risk that Greece could leave the euro zone after its June 17 election is perceived as high. This is hampering business sentiment and growth potential even in the euro zone's powerhouse Germany, as shown by recent data, strengthening the case for the ECB to act.

"(A rise in ECB easing bets) could happen again, it depends on developments in Spain - if they get help, how large recapitalisation needs for the banking system are," said Commerzbank rate strategist Benjamin Schroeder.

"Also there is no clear indication what the outcome (of the Greek election) would be."

"VERY DYSFUNCTIONAL"

Moody's cut the credit ratings of six German banking groups and Austria's three largest banks on Wednesday, giving a glimpse of how far the ramifications of a potential Greek exit from the euro zone might go.

Banks more than tripled their uptake of ECB dollar funding on Wednesday, the latest indication that some are finding it increasingly hard to source cash in the market.

Traders say three weeks is the longest period for which most banks are willing to lend in cash markets, and that's only to a select group of counterparties, also because they are dressing their books for the half-year turn.

In his post-meeting remarks, Draghi himself described interbank markets as "very dysfunctional".