* SNB will try to defend current euro-Swiss levels
* Euro hit by Greece, other sovereign debt fears
* May be too much for SNB to counter
By Catherine Bosley
ZURICH, Feb 5 (Reuters) - The Swiss National Bank will likely to try to keep the franc at its current levels to defend a fragile economic recovery, but there may be little it can do to counter an onslaught of massive euro weakness.
The euro zone is Switzerland's largest trading partner but the single currency has been slammed by concerns about ballooning debts in Greece, Spain and Portugal, exacerbating the dilemma of the SNB, which is keen to prevent the franc's rise.
The franc could also be boosted by flows of funds to Switzerland's many private banks -- which already manage nearly $6 trillion of wealth -- due to euro zone instability.
The franc hit a 15 month peak of 1.4559 per euro on Friday and then dropped back sharply on rumoured SNB intervention, with traders in Asia saying the central bank had stepped in as part of its policy to prevent the currency rising and safeguard the country's exports.
"They're trying to prevent forex shocks," said Janwillem Acket of Julius Baer. "But it can't oppose a big wave. Big developments are simply beyond the reach of a small central bank."
The SNB launched currency interventions and other unconventional measures in March to combat the worst recession in decades and stave off deflationary pressures and has said it has no specific exchange rate target.
"Markets should be impressed for a few days, but will then again increase downwards pressure (on euro-Swiss)," Armin Mekelburg of UniCredit wrote in a note. "What remains unclear is whether the 1.46 level constitutes the SNB's pain threshold."
LOSING BATTLE
Switzerland emerged from that recession in the third quarter of last year and the SNB forecasts growth of 0.5 to 1.0 percent for 2010 and inflation of 0.5 percent. Consumer prices fell 0.5 percent last year, according to statics office data.
Most economists expect a first, small interest rate increase in the second half of 2010, but SNB Chairman Philipp Hildebrand has said its moderately optimistic outlook was fraught with major uncertainties.
The SNB has already started to unwind some of its unconventional measures, including saying it would prevent only "excessive" rises in the franc rather than any increase.
"Excessive strength in the franc represents monetary tightening, which is the last thing Switzerland needs right now," said Callum Henderson, head of global foreign exchange strategy at Standard Chartered Bank.
However, the SNB may well be fighting a losing battle. Through much of 2009 markets regarded 1.50 per euro as the central bank's pain threshold.
But on Dec. 18, after the SNB said it would only prevent "excessive" appreciation, the franc breached that mark and has appreciated more than 2 percent since then.
Most economists still said the trend for coming weeks would likely be one of franc appreciation and Henrik Gullberg of Deutsche Bank said the SNB wouldn't delineate a target exchange rate to prevent traders from testing it.
"They will continue to intervene at these levels. We must be getting close to some sort of pain threshold now," Gullberg said "No country wants to get trapped in a deflationary scenario."
But the SNB's power to restrain the franc has its limits, he cautioned.
"FX markets are very big, so even the SNB is a relatively small player, it can't really move the euro-Swiss exchange rate on its own," he said. (Editing by Sam Cage and Toby Chopra)