NEW YORK, June 15 (Reuters) - The euro hit a two-week high above $1.23 on Tuesday as solid demand at European debt auctions eased worries about the region's fiscal crisis and prompted investors to cover short positions in the currency.

A surprisingly large fall in a German investor sentiment index briefly slowed the euro's advance by suggesting the 16 country euro zone may face a period of slow economic growth.

But investors decided to look on the bright side after Spain raised 5.2 billion euros at 12- and 18-month bill auctions. Belgium netted 2.5 billion euros in an oversubscribed auction of its own.

The refundings went better than expected. At least they can get their business done without having it be exorbitantly expensive. I think that's really important, said Andrew Busch, currency strategist at BMO Capital Markets in Chicago. We have run the cycle of downward pressure on the euro for the time being.

The euro was up 1 percent at $1.2343 EUR=EBS, after rising as high as $1.2344, the strongest level since June 1. On Monday, it closed above its 14-day moving average for the first time since mid-April.

Against the yen, the euro EURJPY= was up 1 percent at 112.96 yen. The dollar was unchanged at 91.49 yen JPY=.

The Swiss franc CHF= jumped more than 1 percent to a one-month high of 1.1299 francs per dollar.

Analysts said traders were taking profits on stretched euro short positions. Commodity Futures Trading Commission data showed speculators had boosted bets against the euro in the week ended June 8 to just shy of record levels. [IMM/FX]

I think essentially we're at a point right now where the market feels that the worst for the euro has been priced in for the time being, said Boris Schlossberg, director of currency research at GFT in New York. We have sort of run out of fresh reasons to short the euro.

CORRECTIVE MOVE?

Traders said central bank bids have helped keep the euro above $1.20 over the last few trading sessions.

By rising above $1.2342 on Tuesday, the euro surpassed the 38 percent retracement of a sharp decline that began at $1.3094 in early May and bottomed out at $1.1876 last week.

Brown Brothers Harriman strategist Win Thin said that could presage a move to $1.2485. But he also said the euro may find it tough to go much further in the near future.

Given that the root problem of insolvency remains in place for several euro zone countries, we continue to view this euro rally as a corrective move before the next move down, he said.

A decision Monday by Moody's Investors Services to cut Greece's credit rating to junk highlighted the issues still facing some peripheral euro zone countries, as did a warning from Spain's treasury secretary that lenders were facing a liquidity freeze in the interbank market.

Greek government bonds will attract an extra 5 percent penalty when banks use them as security for European Central Bank funds, an ECB spokesman said on Tuesday. 

(Additional reporting by Steven C. Johnson; Editing by Andrew Hay)