* Euro gains after option expiry
* Investors likely to cut short positions ahead of qtr end
* Aussie strong, backed by rate view and commodities
* Dlr/yen capped by Japan exporters selling greenback
By Kaori Kaneko
TOKYO, March 30 (Reuters) - The euro rose on Tuesday as investors pared some of their record short positions ahead of the end of the quarter and with sentiment also boosted by Greece's success in raising money from the debt market.
The yen initially edged up against the dollar as Japanese exporters repatriated their overseas earnings, but greenback buying for Japan's new fiscal year starting on Thursday also seemed to emerge and later cut the yen's advance, traders said.
"Risk tolerance seems to be improving gradually, given firm stocks and commodity prices as well as a temporary easing of concerns about Greece," said Tomohiro Nishida, treasury department manager at Chuo Mitsui Trust and Banking.
"I still see a risk for the euro to fall towards $1.30. But in the short term the euro probably has a little more room to rise on investor short-covering up to around $1.3600," he said.
The single currency was at $1.3528, rising 0.3 percent from late trade on Monday in New York when it gained 0.5 percent and pulled away from a 10-month low below $1.33 marked last week.
The euro started to rise quickly in afternoon trade as market talk of an option expiring in Tokyo at 0600 GMT encouraged some players to push the euro higher above $1.3500.
Near-term resistance for the euro is seen around $1.3540, a 50 percent retracement of its decline from a high of $1.3817 on March 17 to a low of $1.3265 on March 26.
The dollar index was down 0.4 percent at 81.060 while the greenback dipped 0.1 percent to 92.39 yen.
While the dollar's near-term direction was largely dominated by last-minute squaring of positions, traders and analysts mulled how the greenback would perform in the next quarter given rising U.S. stocks and Treasury yields.
Thomson Reuters data shows the dollar index correlation with equities weakening, with a 90-day correlation with the Standard & Poor's 500 Index around zero, while the dollar's correlation with U.S. short-term rates and rate differentials has strengthened.
This may signal a change in the dollar's pattern of tending to fall when stocks rise.
Analysts at Barclays said recent extreme positioning in major currencies against the dollar suggests that strong economic data would help the dollar against currencies like the euro and sterling.
But it may help other risky currencies, like the Australian and Canadian dollars, move higher versus the dollar, the analysts said in a note to clients.
Investors in the United States will be watching for consumer confidence and S&P Case/Shiller house prices later on Tuesday, before the government's monthly payrolls on Friday.
GREEK DEBT SALE
Greece's debt management agency sold 5 billion euros ($6.72 billion) of new seven-year debt, but with a yield more than twice what Germany pays.
Despite recent gains in the euro, analysts saw limited upside potential for the single currency given that the euro zone's debt problems and weak growth mean the European Central Bank is in no rush to hike interest rates.
"This appears to be a short-term reprieve for the euro," said John Horner, a currency strategist at Deutsche Bank.
"Apart from the festering debt-related problems, I think some strong U.S. data later this week could also give a lift to the U.S. dollar."
The Australian dollar rose 0.4 percent to $0.9207, helped by growing talk of a rate hike and higher commodity prices.
An Australian central bank watcher argued that the Reserve Bank of Australia (RBA) is likely to lift interest rates next week to 4.25 percent.
RBA watcher Terry McCrann said it would be "extraordinary" for the RBA to not lift rates next week after Governor Glenn Stevens said in a television interview on Monday that rates had been too low and could not stay at previous levels. (Additional reporting by Anirban Nag in Sydney in Satomi Noguchi in Tokyo; Editing by Joseph Radford)