FOREX-Euro fails to hold above $1.29; Canada dollar rises

* Dollar falls vs yen as intervention debated

* Canadian dollar builds on Potash bid gains

* Solid demand at German government bond auction (Updates prices, adds quote, changes byline)

By Wanfeng Zhou

NEW YORK, Aug 18 (Reuters) - The euro slipped against the dollar on Wednesday, surrendering early gains after again failing to hold above a key psychological level.

The dollar came under fresh selling pressure against the yen, moving toward recent 15-year lows on growing speculation that Japanese authorities are unlikely to intervene to counter their currency's recent strong run.

Earlier, the euro had risen after a German government bond auction attracted solid demand, easing concerns about fiscal instability in the European Union. But in a continuation of a trend seen over the last five days, the euro failed to hold above $1.2900.

"We haven't been able to trade clearly above that $1.29 mark in just over a week or so. What you're seeing is once it does break above $1.29, people are taking the opportunity to sell the currency and take a little profit," said John Doyle, senior currency strategist at Tempus Consulting in Washington. "We're still pretty bearish on the euro."

In afternoon trading, the euro was down slightly $1.2875 , trading in a range between the day's low of $1.2824 and the peak of $1.2923, according to Reuters data.

A 5 billion euro sale of German 10-year debt produced a record-low average yield of 2.37 percent. An auction of Portuguese T-bills also went smoothly. For details, see [ID:nLDE67H0Q1] [ID:nLIS002444]

The euro was supported at around $1.2845, the 50 percent retracement of the single currency's fall from its March 17 high to its four-year low struck on June 7.

The euro had recovered from this week's low of $1.2732 on robust responses to Irish and Spanish government debt auctions, although investors remain cautious about going long on the currency amid worries about peripheral euro zone economies.

"There is currently not enough fundamentally positive news out of Europe to drive the euro beyond 1.2900 on a sustained basis," said Joseph Trevisani, chief analyst at FX Solutions in Saddle River, New Jersey.

CANADIAN DOLLAR GAINS

The Canadian dollar rose, with the greenback last trading down 0.4 percent at C$1.0281 . The currency surged on Tuesday after BHP Billiton launched an unsolicited $38.6 billion bid for Canada's Potash Corp. [ID:nSGE67H031] [ID:nN18216265]

Traders said support comes in at C$1.0250, a 61.8 percent Fibonacci retracement of USD/CAD's rise from C$1.01 to C$1.05 in early August.

"Look for the balance to favor the loonie while Potash acquisition talk dominates the headlines," said David Starkey, a foreign exchange trader at Custom House, a Western Union company, in Victoria, British Columbia.

Sterling rose after the release of minutes from the Bank of England's latest policy meeting showed officials were less dovish than expected. [ID:nLDE67H0OO]

The pound was last up 0.2 percent at $1.5614. Traders reported option-related offers at $1.5660/90, which were seen capping the pound's gains.

The dollar shed 0.2 percent to 85.34 yen , not far from a 15-year low of 84.72 yen hit on trading platform EBS last week. Traders cited stops at 85.20 yen which could check the dollar's fall.

Speculation about intervention has mounted ahead of a meeting between Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa expected next Monday. But analysts said Japanese authorities are unlikely to conduct yen-selling intervention unless the currency's rise accelerates sharply. (Additional reporting by Nick Olivari; Editing by Diane Craft)