The euro steadied near a two-week high against the dollar on Wednesday, as investors in Asia hesitated to chase its short-covering rally further, while higher yielding currencies stalled after rallying alongside stocks.

The euro paused ahead of resistance at $1.2350-55 although traders and chartists said it still had scope to extend its gains after a rise in the S&P 500 improved risk tolerance, with some looking for a move above $1.24 and beyond.

Holidays in China and Hong Kong helped keep Asian currency market activity subdued after Wall Street rallied more than 2 percent and the S&P 500 rose above its 200-day moving average for the first time in a month, suggesting the recent downtrend may be nearing an end.

Japanese investors are wary of the euro's move higher, which has been spurred by short-covering from a four-year low of $1.1876 set earlier in June, and are trying to gauge how solid the rise is, said a currency trader at a Japanese brokerage.

At the same time, he and others said the euro, while still in a downtrend, may have further to go before the end of the quarter.

Short-covering and European banks' repatriation will keep the euro buoyant for at least for another week, the trader said.

The euro rose 0.9 percent on Tuesday, touching $1.2350, its strongest since June 1. By Wednesday it had trickled back to $1.2335, with support expected from its 55-hour moving average coming in about $1.2250.

After $1.2350-55, resistance is layered at $1.2370, a 61.8 percent retracement of its late May high to its June low, at $1.2450, which is a late May reaction high, and at $1.2550-70, a 38.2 percent retracement from mid-April highs to the June low.

On Tuesday, investors set aside concerns about the euro zone financial sector and soft economic data to buy riskier assets, higher-yielding currencies and the euro, preferring to look on the bright side after Spain raised 5.2 billion euros ($6.42 billion) at an auction and Belgium netted 2.5 billion euros.

Analysts said the market was watching the rebound in equities.

Markets are not very sensitive to fundamental news because they are pushing back their interest rate forecasts, said Masafumi Yamamoto, chief FX strategist at Barclays in Japan.

Markets are focusing more on equity markets so equity-sensitive currencies like the Aussie, kiwi, Canadian dollar and the Swedish crown could be the main focus.

The Australian dollar was holding up near the month's highs against both the dollar and the yen but failing to capitalize on gains of 1 percent in Asian shares.

It was flat on the day at $0.8645, not far below a one-month high near $0.8670 struck on Monday.

It eased 0.1 percent to 79.05 yen, pausing before resistance at 80.00, a 50 percent retracement of its fall from just above 88.00 in late April to its a low of 71.89 in May and a point at which Japanese retail margin traders are expected to take profits.

The New Zealand dollar fell 0.6 percent to $0.6945, with some talk that it was being weighed on by a comment by Finance Minister Bill English on trying to ensure the rate hike cycle was not as vicious as in the past.

It also lost ground to the Aussie, which rose sharply to its highest in two weeks against the kiwi.

The euro was steady at 112.80 yen, after topping 113.00 on Tuesday to touch its strongest level in two weeks.

The dollar was flat on the day at 91.50 yen, in the middle of a 4 yen range it has held since mid-May.

The dollar index edged up to 86.03, hovering above support near 85.85 which was a low it marked on May 28

But it slipped to its lowest in a month against the Swiss franc at 1.1288 francs.

($1=.8102 Euro)

(Additional reporting by Rika Otsuka in Tokyo and Anirban Nag in Sydney; Editing by Michael Watson)