* Euro hits 2-mth high vs yen, 1-week high vs dollar
* Greek sale of 7-yr debt supports euro
* Euro gains capped by options, Greek concerns linger
(Adds comment, details)
By Naomi Tajitsu
LONDON, March 30 (Reuters) - The euro rose broadly on Tuesday as traders covered short positions, relieved that Greece was able to raise funds from the market following a pledge of financial support from European partners if Athens needs it.
Extending its rally from last week, the euro hit its strongest versus the yen in nearly two months, while edging up to a one-week high against the dollar as traders locked in profits on short euro positions, which peaked last week.
The dollar slipped against a currency basket, while the Australian dollar edged higher on speculation Australian interest rates may rise next month. Higher share and oil prices also boosted commodity-linked currencies.
Analysts said the euro was supported by position squaring before the end of the month -- which wraps up the first quarter for many global firms and the Japanese financial year.
At the same time, Greece's sale of 5 billion euros of seven-year debt on Monday eased some risk aversion following a chill in overall demand for risky assets for much of this year due in part to concerns about Greece's massive debts.
"There's quite a bit of profit taking on euro shorts," said Sven Schubert, currency analyst at Credit Suisse in Zurich.
"At the margin, the decrease in risk aversion is helping the euro to rise."
The euro has gained roughly 1.5 percent versus the dollar since Friday, when EU leaders announced plans for a safety net for Greece, which would include the International Monetary Fund, should Athens need assistance in servicing its debts.
By 1002 GMT, the euro <EUR=> was a shade lower on the day at $1.3470, after hitting $1.3539 in early European trade according to Reuters data, its strongest since March 23.
However market participants said the euro's upside was capped around $1.35, where as much as 1 billion euros' worth of options were expected to expire later in the day.
The euro <EURJPY=R> climbed half a percent on the day to 125.44 yen according to Reuters data, its strongest since early February, before pulling back to 124.70 yen.
Traders have crept back into the euro after bets the single currency will fall hit a record high last week, according to the latest data from the Commodities Futures Trading Commission.
But analysts see limited euro upside potential given that the euro zone's debt problems and weak growth mean the European Central Bank is in no rush to hike interest rates.
"The uncertainties surrounding Greece and wider fiscal issue are still a problem," said Daragh Maher, senior currency strategist at Credit Agricole CIB in London.
The dollar <.DXY> fell more than 0.3 percent against a currency basket to 80.995, its lowest in nearly a week, as European shares <.FTEU3> rose 0.3 percent and oil prices <CLc1> were supported around $82/barrel.
The U.S. currency nudged 0.1 percent higher against a broadly weaker yen to 92.55 yen <JPY=>.
Some analysts say strong U.S. non-farm payrolls data due on Friday may boost the dollar as this would suggest the Federal Reserve may need to raise interest rates later this year.
The Australian dollar <AUD=D4> rose around 0.3 percent to $0.9212, its strongest in more than a week, after an Australian central bank watcher argued the Reserve Bank of Australia (RBA) was likely to lift interest rates next week to 4.25 percent.
(Editing by Nigel Stephenson)