* Euro hits near 2-week high vs dollar, 6-week high vs yen
* Talk of ECB action resurfaces, but euro gains seen limited
* Dollar index falls to near 2-week low
By Jessica Mortimer
LONDON, Aug 21 (Reuters) - The euro rose to a near two-week high against the dollar and a six-week peak versus the yen on Tuesday, lifted by renewed talk the European Central Bank could take strong action to ease Spanish and Italian borrowing costs.
But uncertainties over how effective ECB bond-buying would be and worries over the euro zone’s debt and economic problems were expected to limit the euro’s gains and keep it within the range against the dollar that has held for much of August.
Talk of ECB intervention in debt markets resurfaced this week after a weekend report that it would target specific yield levels as part of any bond-buying programme.
The ECB tried to quash that speculation on Monday but traders cited a story in British newspaper The Daily Telegraph saying it could confirm the reports that ECB experts were examining plans to effectively cap Spanish and Italian yields.
The euro rose 0.5 percent to $1.2419, its highest since Aug. 7 and close to the Aug. 6 high of $1.2444 hit days after ECB President Mario Draghi pledged to do all it takes to preserve the euro.
Traders said it extended gains after breaking above chart resistance at its 55-day moving average at $1.2390 and triggering stop loss buy orders on the break above $1.2400.
“There is a lot of speculation at the moment after the weekend report from the German magazine ... everyone is trying to guess what the ECB will do,” a trader said.
But analysts still expected the euro’s gains to be limited. Although investors remain wary of aggressively selling the currency due to the possibility of ECB action, they are also reluctant to push it much higher.
Any ECB bond-buying will not happen before September. The ECB holds its next policy meeting on Sept. 6 and European Union finance ministers meet on Sept. 14 and 15.
“Meanwhile the market will be trading sideways,” said Niels Christensen, currency strategist at Nordea in Copenhagen.
“If the euro breaks above the August high (1.2444) the upside will be rather limited.”
The euro also rose 0.6 percent to 98.634 yen, its strongest since early July.
The euro’s gains against the dollar also helped push sterling to a three-week high of $1.5761, while the Canadian dollar rose to a 3 1/2-month high of C$0.9856 per U.S. dollar.
The dollar index, which measures the dollar’s value against a basket of currencies, also hit its lowest in nearly two weeks at 82.114, down 0.4 percent on the day.
“The market has been recently cherry-picking only positive factors (for the euro), but I expect a reversal in the next couple of days,” said Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp in Tokyo.
Euro zone leaders hold a series of meetings this week.
French President Francois Hollande and German Chancellor Angela Merkel will meet on Thursday, a day before Greek Prime Minister Antonis Samaras arrives in Berlin.
Samaras is expected to lobby for a two-year extension of austerity measures to soften their impact, though he is unlikely to win major concessions.
The dollar was steady against the yen at 79.42 yen, off a five-week high of 79.66 yen hit on Monday, with selling by Japanese exporters seen capping the currency for now.
The Australian dollar rose 0.7 percent to $1.0515 after central bank minutes showed policymakers thought the full effects of previous interest rate cuts had yet to be felt.