FOREX-Euro up but fragile vs dollar as Greek debt weighs

* Greek concern lingers; Juncker talks of soft restructure

* Some see dollar gains after Fed bond buying ends

* Cross/yen pairs rally on talk of M&A flows (Adds quote and graphics, updates prices, changes byline)

By Julie Haviv

NEW YORK, May 17 (Reuters) - The euro rose against the dollar in choppy trading on Tuesday but remains vulnerable to global risk-aversion and the possibility that Greece might restructure its massive debt.

European finance ministers approved a financial aid package for Portugal on Monday, but Greece's debt situation is a significant wild card. A restructuring of Greece's debt could erode the euro zone's credibility with investors.

The U.S. dollar had received a boost against most major currencies as investors unwound bets in commodities, stocks, and high-yielding units such as the Australian dollar on concerns global growth has stalled.

The dollar's recent outperformance against other 'safe-haven' currencies is probably a reflection of short speculative positioning on the greenback being scaled back as global market jitters persist, said to Vassili Serebriakov, currency strategist at Wells Fargo in New York.

Commodities and stocks were weaker as a result, with U.S. oil futures and the S&P 500 <.SPX> 0.3 percent weaker on the day. Nervousness related to Greece's debt situation also supported safe-haven U.S. Treasury debt. [ID:nN17160326]

Greece's Deputy Foreign Minister Spyros Kouvelis said it was open to a "soft" debt restructuring if needed. Kouvelis' comments came after euro zone officials, including Jean-Claude Juncker, chairman of the euro zone finance ministers, said for the first time on Tuesday Greece may have to ask investors to extend the maturities of its debt or agree to a soft restructuring. Click on [ID:nLDE74G1IK]. For Juncker's comments, see [ID:nWEA1772].

But key European Union officials including German Chancellor Angela Merkel vehemently opposed restructuring any euro zone country's debt. Merkel on Monday said such a scenario could lead to massive investor flight from euro zone bonds.

"A voluntary Greek restructuring would still be a euro negative event in the short-term by setting a dangerous precedent," Serebriakov said.

The euro was last at $1.4194 , up 0.3 percent, recovering from a seven-week low of around $1.4048 hit on Monday on trading platform EBS. Some traders said as long as it stayed below its 55-day moving average of $1.4280, it was vulnerable to a test of its recent lows.

The $1.40 trading level has kept the euro supported with buying from central banks and hedge funds.

DiDi Weinblatt, vice president of mutual fund portfolios at USAA Investment Management Company in San Antonio, Texas, said the June conclusion of the U.S. Federal Reserve's second round of quantitative easing, called QE2, should cause Treasury yields to rise.

The Fed's bond buying program launched in November and entailed buying $600 billion in Treasury securities.

"With the end of QE2 nearing I am nervous about buying Treasuries right now," she said. "The whole world is based on supply and demand dynamics, and so the Fed is going to leave a large void, which should push Treasury yields higher."

Weinblatt, who oversees just under $4 billion in assets, said higher yields should make dollar-denominated assets more appealing and that should buoy the dollar.

"The euro still faces peripheral debt issues and that should weigh on the currency," she said.

The U.S. dollar index <.DXY>, which tracks the performance of the greenback against a basket of currencies, is down 0.4 percent since Nov. 3 and down 9 percent since late August, when Fed Chairman Ben Bernanke signaled QE2 was on the horizon.

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For graphic on asset moves since August:

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The euro hit a 17-month peak near $1.4940 in early May, buoyed by market expectations that the ECB would raise interest rates further in the coming months, while the Federal Reserve is expected to keep interest rates near zero this year.

The yen, meanwhile, fell broadly as Toshiba Corp <6502.T> was said to be close to buying Swiss-based Landis+Gyr and media reports said Takeda was in advanced talks to purchase Swiss-based rival Nycomed, developments that were the catalyst for yen selling. [ID:nL4E7GH09K]

The euro rose 1.3 percent to 115.82 yen , while the Swiss franc was up 0.5 percent at 91.86 yen . The dollar was up 0.9 percent against the yen at 81.52 yen, with traders citing demand from funds and stops above 82 yen. (Additional reporting by Gertrude Chavez-Dreyfuss; Editing by Padraic Cassidy)