(Adds quote, updates prices)
* Euro climbs, real money and leveraged accounts seen buying
* EU's Barroso comments on euro bonds help euro off lows
* Confidence fragile, further falls below $1.35 seen possible
By Nia Williams
LONDON, Sept 14 (Reuters) - The euro rose against the dollar on Wednesday, turning positive in tandem with stocks after European Commission comments suggesting the possibility of joint euro area bonds, but remained vulnerable to a drop towards recent lows.
Demand from real money and short covering by leveraged investors pushed the single currency to a session high of $1.3742 , market players said. Traders also cited demand for euros at the 1100 GMT London fix.
Gains were capped by offers above $1.3730-50, and the euro was seen vulnerable to a test of Monday's seven-month trough at $1.3495. It was last trading up 0.3 percent at $1.3720.
The single currency climbed after European Commission President Jose Manuel Barroso pledged the Commission would soon publish a long-promised study on introducing euro area bonds, considered a potential solution to the debt crisis.
Although the comments boosted riskier assets including stocks, market players remained wary after Barroso warned the move would not put an end to the crisis, while Germany also remains firmly opposed to any such move.
"I cannot imagine Germany being in a position to support this so it's hard to believe this euro bonds idea will run smoothly," said Derek Halpenny, currency strategist at Bank of Tokyo-Mitsubishi.
"FX short-term players and momentum players were short and something like this that alters perceptions in any way, whether you believe or not, leads to people covering their risk. We've had this bounce but scepticism will come back pretty quickly."
Focus now turns to a conference call due later on Wednesday between Greek Prime Minister George Papandreou, French President Nicolas Sarkozy and German Chancellor Angela Merkel.
Markets were hopeful the call may result in support for Greece and tame concerns about a Greek default. but they were not confident any agreement would be enough to stem contagion to larger euro zone countries such as Italy and Spain.
Meanwhile, concerns about the fragility of the euro zone banking sector weighed on sentiment after Moody's earlier cut the credit ratings of two major French banks, pressuring the euro and high-yielding currencies like the Aussie dollar.
"If pressure continues on bigger countries like Spain and Italy and if there is no help from the Federal Reserve in the form of more quantitative easing there is a risk of euro/dollar settling into a $1.35-$1.30 range," said Roberto Mialich, currency strategist at Unicredit in Milan.
"One piece of negative news is enough to erase any recovery in euro/dollar at the moment".
U.S. CONCERN OVER EURO ZONE
As a measure of the concern in Washington over the euro zone situation, U.S. Treasury Secretary Timothy Geithner will take the unprecedented step of attending a meeting of EU finance ministers in Poland on Friday.
It will be his second trip to Europe in a week after he met his main EU counterparts at a G7 meeting last weekend.
Focus will switch back to the U.S. dollar next week when the Federal Reserve Monetary Policy Committee meets, with any hints policymakers are considering another round of quantitative easing likely to weigh on the dollar.
The dollar index was last flat at 76.921, and the cautious rise in investor appetite to take on risk helped the Australian dollar pare some losses to last trade down 0.5 percent at US$1.0262 .
It earlier fell more than 1 percent to a low of US$1.0178, hit particularly hard after a downward adjustment to second-quarter inflation added to the case against higher rates.
The dollar edged lower versus the yen to 76.78 , within the 76.40/77.85 range of the last three weeks. Investors remained wary of possible intervention by Japan to weaken the yen, after the Swiss National Bank set a minimum target exchange rate in the euro versus the franc last week. (Additional reporting by Jessica Mortimer)