* Euro hits 2-week high vs dollar, 6-week high vs yen
* Talk of ECB action resurfaces, but euro gains seen limited
* Strong euro resistance expected at August high of $1.2444
By Nia Williams
LONDON, Aug 21 (Reuters) - The euro rose to a two-week high against the dollar and a six-week peak versus the yen on Tuesday, lifted by talk the European Central Bank will take strong action to ease Spanish and Italian borrowing costs.
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 however, and keep it hemmed below this month’s high of $1.2444.
Talk of ECB intervention in debt markets resurfaced after a weekend report in Germany’s Spiegel magazine that the central bank 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.
While that does not advance the process of the ECB actually intervening - still largely dependent on German political leaders’ attitude at a series of key meetings next month - investors see that as evidence that the ECB is moving closer to action.
“The euro can trade okay now because of the Spiegel article on the weekend, there’s a bridge of hope between now and the next ECB meeting,” said Geoff Kendrick, FX strategist at Nomura.
“The euro might go up a little bit because of peripheral spreads (steadying) but there’s been no structural change. The trading strategy should be buy on dips and sell around $1.2450.”
The euro rose 0.7 percent to $1.24281, its highest since Aug. 7 and close to the Aug. 6 peak 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.
Although investors remained wary of aggressively selling the currency due to the possibility of ECB action, they were also reluctant to push it much higher.
The ECB holds its next policy meeting on Sept. 6 and European Union finance ministers meet on Sept. 14 and 15 - 10 days of action seen as critical for efforts to quell the crisis and keep Greece in the single currency.
“Meanwhile the market will be trading sideways,” said Niels Christensen, 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 0.7 percent to 98.685 yen, its strongest since early July.
The euro’s gains against the dollar helped push sterling to a two-month high of $1.5779, while the Canadian dollar rose to a 3 1/2-month high of C$0.9852 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 82.052.
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.