FOREX-Euro dips off 2-mth high vs yen; fiscal woe lingers

* Euro gains capped by options, fiscal concerns linger

* Euro slips from 2-mth high vs yen, 1-week high vs dollar

* Greek sale of 7-yr debt aids sentiment in near-term

(Adds comment, details)

By Neal Armstrong

LONDON, March 30 (Reuters) - The euro hit a two-month high against the yen on Tuesday on relief that Greece was able to raise funds from the market, though gains were quickly trimmed as wider euro zone fiscal concerns weighed on sentiment.

Extending its rally from last week, the euro hit its strongest versus the yen in nearly two months, while edging up to a one-week high against the dollar as traders locked in profits on short euro positions, which peaked last week.

But analysts saw limited upside potential given that the euro zone's debt problems and weak growth mean the European Central Bank is in no rush to hike interest rates.

"The uncertainties surrounding Greece and wider fiscal issue are still a problem," said Daragh Maher, senior currency strategist at Credit Agricole CIB in London.

The euro was supported by position squaring, while Greece's sale of 5 billion euros of seven-year debt on Monday eased some risk aversion over its massive debts.

"The fact that Greece has come to market encouraged some people to square up their euro shorts which were at extreme levels," said RBS currency strategist Paul Robson.

By 1215 GMT, the euro was back to flat on the day versus the dollar after hitting $1.3539 in early European trade according to Reuters data, its strongest since March 23.

"The subsequent move back from the highs looks like it has been flow-driven," Robson added.

The euro has gained roughly 1.5 percent versus the dollar since Friday, when euro zone leaders announced plans for a safety net for Greece, which would include the International Monetary Fund, should Athens need help in servicing its debts.

Market participants said the euro's upside was capped around $1.3500, where as much as 1 billion euros' worth of options were reportedly set to expire at 1400GMT.

The euro climbed half a percent on the day to 125.44 yen according to Reuters data, its strongest since early February, before pulling back to 124.75 yen.

Technical analysts said a daily close above the 125.25 level would complete a head-and-shoulders reversal pattern, paving the way for fresh upside potential.

Traders have crept back into the euro after bets the single currency will fall hit a record high last week, according to the latest data from the Commodities Futures Trading Commission.

DOLLAR DOWN

The dollar <.DXY> fell around 0.2 percent against a currency basket to 81.155, its lowest in nearly a week, as European shares <.FTEU3> rose 0.3 percent and oil prices were supported around $82/barrel.

The U.S. currency edged up against the yen to 92.52 yen . Traders reported strong UK clearer selling capping the pair.

Some analysts say that if U.S. non-farm payrolls data due on Friday is strong it may boost the dollar as this would suggest the Federal Reserve may need to raise interest rates later this year.

The Australian dollar rose to its strongest in more than a week at $0.9215, after an Australian central bank watcher argued the Reserve Bank of Australia (RBA) was likely to lift interest rates next week to 4.25 percent.

(Additional reporting by Naomi Tajitsu; Editing by Nigel Stephenson)