LONDON, June 21 (Reuters) - The euro and Australian dollar hit their highest levels in about a month on Monday after China allowed the yuan to rise to a post-revaluation high, but confidence in the single currency's recovery remained fragile.
Spot yuan rose to its highest level since its revaluation five years ago, adding to hopes that a pledge from China on yuan flexibility would begin to reduce global imbalances and ease tensions in the Group of 20 leading economies ahead of a meeting next week.
The move will boost China's buying power abroad and is seen as broadly positive for the global economic recovery. It spurred a worldwide rise in commodity and oil prices and boosted riskier assets across the board.
This move takes the focus off China going into the G20. It has supported risk appetite, which was already improving, and high-yielders have been the main beneficiaries, said Lauren Rosborough, senior currency strategist at Westpac.
The dollar slipped versus a basket of currencies .DXY to trade at a one-month low in Asia of 85.091, in turn allowing the euro EUR= to rally to $1.2490 versus the dollar on trading platform EBS, its highest level since May 24.
By 0925 GMT, the euro had slipped back to trade with gains of just 0.1 percent at $1.2403. Traders said there were option barriers at $1.2500 preventing further gains, reportedly being protected by a major Asian sovereign account.
The euro had closed on Friday with its best weekly gain since May 2009 after a successful Spanish bond auction eased concerns over the health of Spain's public finances, prompting investors to scale back bets against the single currency.
The euro's recovery, however, is still fragile.
A sell the rally mentality persists for the euro in the short-term. Its rise has been a function of position adjustment. said Paul Mackel, director of FX strategy at HSBC.
Mackel suggested brighter signals were needed in euro zone bond markets for the currency's recovery to be sustainable.
The higher-yielding Australian dollar AUD=D4 gained 1.4 percent to around $0.8840, off earlier highs of $0.8860, a one-month peak, as European equities .FTEU3 rallied one percent following strong gains in Asian bourses.
The MSCI Asia Pacific index was up 2.6%, with strength seen across the region as China's policy statement is seen as a strong sign of confidence in the global recovery story. said analysts at Brown Brothers Harriman in a note to clients.
The New Zealand dollar NZD=D4 also rose around one percent to $0.7130, after having climbed to a five-week high of $0.7153.
A higher yuan would help temper inflation in China by pushing down import prices, which in turn could mean Beijing would have less need to tighten monetary policy aggressively.
Markets have been worried China could over-tighten and slow its economy too far.
The low-yielding yen slipped versus the euro EURJPY=R, which traded at 113.25 yen, up 0.8 percent on the day. The dollar was up 0.6 percent versus the yen JPY= at 91.25 yen. (Editing by Patrick Graham)