The euro surrendered early gains and fell against the dollar on Wednesday in technical trading after again failing to holds above a key psychological level.

Earlier, the euro had rallied for the third straight day against the dollar after a German government bond auction attracted solid demand, easing some concerns about fiscal instability in the European Union. That euphoria failed to last much into the New York session.

The dollar came under fresh selling pressure against the yen, easing toward recent 15-year lows on growing speculation that Japanese authorities are unlikely to intervene to counter their currency's recent strong run.

Sterling rose after the the release of minutes from the Bank of England's latest policy meeting showed officials were less dovish than expected.

The euro recovered from the day's low after a 5 billion euro sale of German 10-year debt produced a record-low average yield of 2.37 percent. An auction of Portuguese T-bills also went smoothly.

But in a continuation of a trend seen over the last five days, the euro failed to hold above the key level of $1.2900.

This looks like a technical failure at the $1.2900 level, said Joseph Trevisani, chief analyst at FX Solutions in Saddle River, New Jersey. There is currently not enough fundamentally positive news out of Europe to drive the euro beyond 1.2900 on a sustained basis.

Midway through the New York session, the euro was down 0.1 percent against the dollar at $1.2861 EUR=, trading in a range between the day's low of $1.2824 and the peak of $1.2923.

The euro was supported at around $1.2845, the 50 percent retracement of the single currency's fall from its March 17 high to its four-year low struck on June 7.

The euro had recovered from this week's low of $1.2732 on robust responses to Irish and Spanish government debt auctions, although investors remain cautious about going long on the single currency due to worries about peripheral euro zone economies.

STERLING CLIMBS

The pound GBP= traded 0.1 percent higher at $1.5596. It hit the day's high after minutes from the BoE's policy meeting earlier this month showed an 8-1 vote to hold interest rates at a record low 0.5 percent. One policy maker voted in favor of a rate rise.

Sterling recovered from a three-week low hit earlier in the day on talk the BoE minutes could reveal a three-way split decision, which would have meant one member voting for an increase in the central bank's quantitative easing program. Traders reported option-related offers at $1.5660/90, which were seen capping the pound's gains.

The dollar shed 0.3 percent against the yen to 85.32 yen JPY=, not far from a 15-year low of 84.72 yen hit on trading platform EBS last week. Traders cited stops at 85.20 yen which could check the dollar's fall.

Dollar/yen is headed toward the 85 yen level and there is little that can be done to prevent that, said Kenneth Broux, markets strategist at Lloyds TSB Financial Markets. Japanese authorities are seem as unlikely to conduct yen-selling intervention unless the currency's rise accelerates sharply, market players say.

Speculation about intervention has mounted ahead of a meeting between Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa expected next Monday.

The Canadian dollar was higher against the greenback at C$1.0307 CAD= having surged on Tuesday after BHP Billiton (BLT.L) (BHP.AX) launched an unsolicited $38.6 billion bid for Canada's Potash Corp.  (Additional reporting by Naomi Tajitsu in London; Editing by Leslie Adler)