* Euro turns higher after Spanish, Irish, Belgian auctions
* Auctions offset weak German ZEW, Moody's Greece downgrade
* Analysts see room for further eur/dlr short squeeze
By Jessica Mortimer
LONDON, June 15 (Reuters) - The euro turned higher on Tuesday as solid demand at debt auctions eased concerns about euro zone debt problems after Monday's downgrade of Greece to junk status.
The euro erased brief losses seen in the wake of a weak German ZEW investor sentiment survey, which renewed concerns about the negative effects of the euro zone debt crisis on the wider economy. [ID:nLDE65E0TL]
But analysts said the euro's falls had been unconvincing, with solid demand at auctions in Spain, Ireland and Belgium enough to push it back up. [ID:nLDE65E0WQ] [ID:nWLA6316] [ID:nTAR001853]
"There is enough to stop people from aggressively selling euro/dollar," said RBS currency strategist Paul Robson.
"S&P (ratings agency) had already downgraded Greece to junk, so the Moody's news was less significant, and the ZEW survey was weak but other survey data has been relatively good".
He said there was scope for a squeeze in euro short positions up to around the $1.26 level.
At 1027 GMT, the euro was up 0.3 percent to $1.2258 EUR=, coming off an earlier low of $1.2167.
This euro has stayed above $1.20, well off its recent four-year low around $1.1876, with traders saying central bank bids around $1.2170 were putting a lid on losses.
Analysts said euro short positions were also very stretched, with traders taking profits on current positions without taking on new shorts.
Commodity Futures Trading Commission data showed speculators boosted their bets against the euro in the week ended June 8, with net short positions just below record levels. [IMM/FX]
SEB technical analysts said $1.2045 should provide solid support for the euro. That level is around the lows hit on Friday before Monday's solid rally on Monday to close to $1.23.
The euro closed on Monday above its 14 day moving average for the first time since mid-April.
Euro gains may be limited, however, with worries about Spanish banks persisting after Spanish Treasury Secretary Carlos Ocana acknowledged on Monday that some Spanish lenders faced a liquidity freeze in the interbank market. [ID:nMDT009101]
"The Greece downgrade highlighted that these problems are quite severe and it is difficult to see the liquidity problems in Spain improving and I think the euro will struggle going forward," said Johan Javeus, currency strategist at SEB in Stockholm.
Moody's slashed Greece's rating by four notches, citing "macroeconomic and implementation risks" in the country's draconian austerity programme and renewing doubts about Greece's ability to repay its debt. [ID:nN14207740]
This put a stop to the euro's impressive run over the past few sessions when a rally in equity markets prompted investors to take profits on hefty short positions, leading the single currency to stall just shy of resistance at around $1.23.
The euro erased earlier losses against the yen EURJPY= to turn 0.1 percent higher at 111.98 yen. The U.S. dollar lost 0.2 percent to 91.40 yen JPY=.
(Additional reporting by Satomi Noguchi in Tokyo)