* Euro down 0.3 pct at $1.2321
* Extreme risk aversion eases as equities rebound
* Concerns about tight dollar funding weigh
* U.S. Treasury Secretary Geithner in Europe
(Releads, adds quote, updates prices)
By Tamawa Desai
LONDON, May 26 (Reuters) - The euro slipped on Wednesday but was off near four-year lows hit against the dollar the previous day as equities rebounded, although sentiment remained shaky for the single currency.
The euro was also dented by lacklustre demand at a German debt auction [ID:nTAR001747]. A separate auction of Portuguese government paper that saw robust demand [ID:nLIS002381] failed to bolster the single currency.
Concerns about tighter dollar funding conditions, with three-month dollar interbank rates hitting a fresh 10-month high on Wednesday, also weighed on the euro.
As extreme risk aversion eased, European shares <.FTEU3>
rallied 2 percent and U.S. stock futures
By 1113 GMT, the euro
"The market has been very short and maybe it's time for the market to take a breather... but tentative is a good way to describe the rebound," said Geoffrey Yu, currency strategist at UBS.
Nomura currency strategist Ned Rumpeltin said the market was in "consolidation mode," and position adjustments may drive the currency as high as $1.26 before it resumes its downtrend towards $1.20.
Earlier, the euro suffered after U.S. Federal Reserve Chairman Ben Bernanke said the U.S central bank's dollar funding facility was unlikely last forever.
Speaking in Tokyo, Bernanke said dollar swap lines, which were reinstated as a Greek debt crisis escalated, played an important role in stabilising markets, but that the Fed did not want to provide a permanent service. [ID:nTOE64P01H]
Meanwhile, the Wall Street Journal reported on Tuesday the Fed could cut the rate it charges the European Central Bank for dollar swaps to spur the flow of dollars to banks in Europe if strains from the European debt crisis increase. [ID:nN25163986]
U.S. Treasury Secretary Timothy Geithner will meet his new UK counterpart George Osborne and Bank of England Governor Mervyn King in London later on Wednesday, before travelling to Frankfurt for a dinner meeting with European Central Bank President Jean-Claude Trichet.
Geithner is expected to discuss the debt crisis in Europe, which has led to global market turmoil in the past few weeks.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.2 percent at 86.577 <.DXY>.
Against the yen, the euro was down 0.3 percent at 111.27 yen
The dollar was little changed against the yen at 90.27 yen
Growth-linked currencies such as the Australian and New Zealand dollars also erased hefty losses seen the previous day.
(Additional reporting by Naomi Tajitsu; editing by Nigel Stephenson)