* Aussie breaches first layer of resistance at $0.8552 * Dollar index backs further down from recent high
By Charlotte Cooper
TOKYO, June 14 (Reuters) - The euro's short-covering rally took it briefly above $1.22 to its strongest in a week on Monday, although traders were wary about driving it too far, while the Australian dollar climbed to its highest point in four weeks.
With early Asian trade thinned by a holiday in Australia, traders said the euro popped stop-loss buy orders at $1.2160, laying the groundwork for a push above $1.22 as holders of short euro positions bought it back, fuelling the jump.
The euro was trading at its highest level since early June against the U.S. dollar, while the Australian dollar, which benefited late last week from improved risk tolerance that also helped stocks rise, tackled the first in a number of layers of resistance.
The Aussie, which fell in April and May as the euro tumbled, breached $0.8552, its highest in four weeks, and now faces resistance at about $0.8570-80, stemming from a low in February and a 38.2 percent retracement of the April-May drop.
I suspect there are euro short positions left in markets so there will probably be a bit more short-covering, said Daisuke Karakama, market economist at Mizuho Corporate Bank.
But its rebound will run out of gas. There will be an EU summit this week, but European policymakers appear to have run out of policy steps for now.
The market remains wary of euro zone debt problems and the risks these pose to the banking sector.
It has lost 15 percent against the dollar this year but managed to gain 1.6 percent in the course of last week as it pulled up from a four-year low at $1.1876.
It was up 0.5 percent from late U.S. trade on Friday at $1.2178 after reaching as far as $1.2208.
The euro seems to be led by stop-losses. The Aussie is more clear, said a senior trader at a European bank in Tokyo.
It's inching up to $0.85-middle, which is a very important resistance level, and that's why people want to try higher. It's technically driven.
The Australian dollar rose 0.5 percent to $0.8553 after probing as far as $0.8563. It peaked just below $0.94 in April but twice found support at $0.8065-80 and has risen since, making chartists look for signals that it can recover higher.
It also gained 0.3 percent on the low-yielding yen to 78.46 yen AUDJPY=R, which was soft across the board. The euro climbed 0.7 percent to 111.77 yen EURJPY=R, its firmest levels against the Japanese currency for more than a week.
The dollar edged up 0.1 percent to 91.77 yen but the dollar index .DXY, a gauge of its performance against six major currencies, fell 0.6 percent to 86.954, retreating further from a 15-month high above 88.70 set last week and slipping below its 14-day moving average at 87.251. (Additional reporting by Hideyuki Sano, Satomi Noguchi in Tokyo and FX analyst Krishna Kumar in Sydney; Editing by Hugh Lawson)