* Euro up 0.2 pct at $1.3241
* EU summit not seen offering solution to debt crisis
* Dollar dips as surge in U.S. Treasury yields ebbs
By Tamawa Desai
LONDON, Dec 16 (Reuters) - The euro edged higher on Thursday ahead of an EU summit but remained vulnerable on euro zone debt concerns, while the dollar slipped back after a surge in U.S. Treasury yields ebbed.
EU leaders meet in Brussels on Thursday and Friday to try to agree on further action to tackle a year-long debt crisis that has consumed Greece and Ireland and threatens to spread to Portugal and Spain.
"The forex market has gone into this with a high degree of hope for some signs of consensus from political leaders ... although I doubt there will be any additional clarity on euro bonds or enhancing the bailout fund," said Jane Foley, senior currency strategist at Rabobank.
"If they (politicians) give an impression of many differentiating factions, the market would react quite badly."
Euro zone policymakers are toying with a number of ideas to fall back on if moves to create a permanent European Stability Mechanism for solving debt crises fail to calm financial markets next year.
By 0900 GMT, the euro was up 0.2 percent at $1.3241 after falling more than 1 percent on Wednesday. Chartists put support at $1.3160-65, with the next level to watch at $1.3050-75 and then the November low of $1.2969.
Option expiries were being cited at $1.3200 and at $1.3300.
Spain will remain in focus ahead of the summit after ratings agency Moody's warned on Wednesday it could downgrade Spain's rating and as Madrid was scheduled to sell up to 3 billion euros of 2020 and 2025 bonds on Thursday.
"It's bad timing considering Moody's announcement before the auction, but there has been substantial cheapening so it will be interesting to see what level of demand emerges," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.
Reaction was limited to data showing the euro zone flash manufacturing purchasing mangers' index rose to its highest level since April at 56.8 in December from 55.3 in November, confounding forecasts for a fall to 55.2.
DOLLAR LOSES STEAM
The dollar lost upward momentum as U.S. Treasury yields eased and the dollar index was down 0.2 percent at 80.07.
It had gained earlier this week as benchmark 10-year Treasury yields rose, hitting seven-month highs at 3.565 percent and pushing the dollar to a three-month high against the yen at 84.51 yen on Wednesday.
On Thursday the dollar slipped back to 84.07 yen.
"The move above 84.41 yen should be a bullish sign for the dollar/yen but it does depend on U.S. yields," said Masafumi Yamamoto, chief FX strategist at Barclays in Tokyo.
A convincing break of 84.50 could bring the dollar into sight of post-intervention peaks near 86.00 yen set in September.
Many market players are not convinced the selloff in Treasuries since early November is coming to an end. However, while a further rise in U.S. bond yields was seen helping the dollar, some market players noted a breakdown in the dollar/yen's correlation with U.S. bond yields and with U.S.-Japan yield spreads.
Its three-month correlation with five-year yield spreads fell to just 0.65 from 0.96 in August/September.
"It's too early to say with conviction, but it could be due to an emergence of bearish factors, such as the U.S. fiscal situation," Rabobank's Foley said.
The Swiss franc dipped against the euro after the Swiss National Bank left interest rates unchanged as expected and said it would take all measures necessary should the euro zone crisis lead to renewed deflation threats in Switzerland.
The Swiss franc hit a record high of 1.2758 francs per euro on trading platform EBS on Wednesday. (Additional reporting by Charlotte Cooper in Tokyo; Editing by Susan Fenton)