* Euro pauses from short covering rally
* Options barriers, technical resistance cap euro upside
* Dollar little changed, yen edges down
(Adds comment, updates prices, adds detail)
By Naomi Tajitsu
LONDON, June 11 (Reuters) - The euro rose on Friday on the back of higher stocks, but the single currency struggled to extend its short-covering rally versus the dollar ahead of technical resistance, while options barriers also capped gains.
A 0.9 percent rise in European shares .FTEU3 helped support the euro, but its climb petered out around $1.2150, where options were due to expire later in the day.
That level also provided technical resistance, as the $1.2150-1.2155 area offered support during the euro's downward move in May. A break through $1.2150 this month opened the way to a fall to $1.1876 this week, a more than four-year low.
"Previously, when we've had a short covering rally in risk assets, and in an uptick in euro/dollar in particular, investors were very mindful of technical levels and the market was willing to sell into resistance," said Valentin Marinov, currency strategist at Societe Generale.
He added that the same thing was happening on Friday.
"Given the lack of economic data or events today, traders are using technicals to gauge market sentiment," he added.
By 0955 GMT, the euro EUR= was up 0.1 percent at $1.2120. Earlier in the day it rose as high as $1.2148 on Reuters data.
"Euro/dollar is approaching an important level at $1.2150 -- above that point could see the ongoing correction extend to the upside," said Dag Muller, technical analyst at SEB in Stockholm.
"Should we fail to take it out, the market could start to sell, and we can easily get back to those lows."
Market participants said $1.2135 was also in focus, roughly the 50 percent retracement of the euro's 200-2008 rally.
The euro EURJPY=R rose 0.5 percent to 111.12 yen, above an 8 1/2-year trough of 108.86 yen hit on Monday.
Some market participants said a successful auction of Italian bonds helped to bolster the euro. The sale followed strong demand at a Spanish auction on Thursday. [ID:nLDE65A0FW]
European shares were boosted by higher equity markets in Asia and the United States, reflecting slightly better risk demand all week due in part as strong Chinese export data this week has helped to spur optimism about the global economy.
The dollar inched up 0.2 percent to 91.50 yen, and was little changed against a currency basket at 87.103 .DXY.
The Australian and New Zealand dollars slipped across the board as traders booked profits on their rallies this week.
MORE EURO DOWNSIDE?
Despite the euro's selloff earlier this week, it is poised to end 1.5 percent higher against the dollar, which would be its best weekly performance this year, as investors have been left with stale short euro positions after its fall to $1.1876.
It has shed 1.5 percent this month and nearly 16 percent this year, driven lower by fiscal concerns in the euro zone.
Many in the market expect the euro will stay under selling pressure in the longer term on concerns that debt problems in some euro zone countries are spreading.
But some investors breathed a sigh of relief after European Central Bank President Jean-Claude Trichet said on Thursday that three-month emergency loans to banks would continue until September. [ID:nSGE65A02M]
He also said the ECB's government bond buying plan was meant to improve liquidity, rather than being a policy measure.
ECB Board member Juergen Stark reiterated that position on Friday, saying the decision to buy bonds was temporary. [ID:nLDE65A0HX]
(Editing by Nigel Stephenson)