* Euro inches up but expected to stay under selling pressure
* Greek debt default concerns underline euro zone problems
* Dollar shakes off S&P outlook downgrade
By Naomi Tajitsu
LONDON, April 19 (Reuters) - The euro found its footing against the dollar on Tuesday as it paused from the previous day's sell-off, but debt problems in the euro zone continued to haunt the single currency, keeping it vulnerable to more losses.
The dollar held gains made on Monday, when risky assets were hit by a double whammy on mounting speculation that Greece will have to restructure its mountain of debt and Standard & Poor's threatened to cut the United States' prized AAA credit rating.
The euro edged up to the day's high around $1.4290, nudging up after stop-loss orders were triggered above $1.4250.
But it pared gains after a German Finance Ministry official said a Greek debt restructuring was inevitable. Athens has denied such a possibility.
But the comments supported an Athens newspaper report which cited a European Commission official as saying Greece has accepted it cannot avoid a restructuring, compounding speculation of a possible default and capping euro gains.
Traders cited euro sell orders above $1.4270, and market participants said the currency could encounter more selling ahead of the Easter holidays, which begin on Friday.
The euro has pulled back sharply after it was unable to hold onto a 15-month high above $1.45 hit earlier this month. Analysts said the possibility that a country which has received a debt bailout may still have to restructure its borrowing could push the euro lower.
Many in the market have flocked to U.S. assets despite the ratings outlook downgrade, on the view that such investments remained the safest bet during times of uncertainty.
"The European debt crisis is in the market's focus again, and people are concerned there is no lasting solution. Meanwhile, even negative news in the U.S. isn't putting too much pressure on the dollar anymore," said Lutz Karpowitz, currency analyst at Commerzbank in Frankfurt. "There isn't a dollar-negative sentiment anymore."
Analysts said investors are wary of holding bets in favour of the euro over the four-day holiday, adding that that the single currency could encounter more losses if those positions are closed out.
The dollar slipped 0.3 percent on the day against a currency basket to 75.290, but it stuck near its highest in more than a week hit on Monday.
The U.S. currency was largely unchanged at 82.60 yen, while the yen suffered against other currencies as hedge funds and Japanese life insurers are positioned for it to resume its slide before long.
RISK POSITIONING
Given that a majority of U.S. debt is owned by foreign investors, some analysts were surprised the S&P announcement failed to trigger lasting selling in the dollar. Some said the dollar's gains suggested investors were keen to lighten their heavy positioning in favour of the euro.
"You'd think the dollar would sell off more on the S&P because an announcement like that is so rare, but the fact that it didn't is a warning sign that we could see a bigger position adjustment than what has already occurred," said Paul Mackel, director of currency strategy at HSBC.
He added there was a risk that the dollar could squeeze higher and for longer than investors currently think.
"The price action suggests the euro was getting pretty tired. It was definately looking that way around $1.45," he said.
A build-up of positions in risky assets -- IMM futures speculators held near-record long positions in the Australian dollar last week, while euro longs hit a three-year peak -- suggests that a squeeze could be significant.
In addition, analysts balanced the U.S. rating threat with the arguement that foreign investors would continue to buy U.S. Treasuries due to their depth of liquidity.
Analysts at Credit Agricole CIB said this would keep the dollar supported, while pushing the euro to $1.39 by end-June.
Still, some said longer-term bearish views on the U.S. dollar and the yen remained intact with both the Federal Reserve and the Bank of Japan set to keep monetary policy ultra-loose while interest rates in some other countries keep rising.
This would keep intact the funding-currency status of the dollar and the yen in carry trades where they are used to fund investments in higher-yielding and riskier assets. (Additional reporting by Asia Forex Team; editing by Stephen Nisbet