* Euro up 0.6 percent at $1.2263 EUR=
* ECB allots 131.9 bln euros, less than expected
* German presidential election, stress tests watched
* Swiss franc falls as Hungary plans new IMF deal
(Adds quotes, updates prices)
By Tamawa Desai
LONDON, June 30 (Reuters) - The euro extended gains on Wednesday as banks sought less funds than expected from the European Central Bank, easing concerns the central bank was pulling support too quickly from the money market.
The ECB lent banks 131.9 billion euros ($161.4 billion) in three-month funds on Wednesday, below expectations, as banks face the repayment of close to half a trillion euros in 12-month funds on Thursday. [ID:nLDE65T0SD]
"The amount taken down today was smaller so if you link it to confidence, it shows that weaker banks don't need as much money as expected," said Marcus Hettinger, global currency strategist at Credit Suisse in Zurich.
The euro initially rose around 50 ticks against the dollar before extending gains to hit the day's high of $1.2284 EUR=, according to Reuters data, and moving further away from a two-week low near $1.2150 EUR= struck the previous day.
Traders cited some Asian central bank demand below $1.2200.
More offers were absorbed around $1.2270/80, with stop-losses near $1.2340/50.
The euro also gained 1.0 percent against sterling EURGBP=D4. Flows related to the end of the month, quarter and half year affected price movements in thin trade, traders said.
Against the yen, the euro was up 0.9 percent at 108.86 EURJPY=R, after hitting a 8-1/2 year low of 107.30 yen the previous day.
But market players were cautious as there were more events lined up that could pose a risk for the single currency.
Investors were keeping an eye on the German presidential election on Wednesday. [ID:nLDE65R0BY]
"We don't expect any surprises, but if it goes into a second or third round, it would raise questions about German Chancellor Angela Merkel's political support and weigh on the euro," said Antje Praefcke, currency strategist at Commerzbank in Frankfurt.
They were also wary ahead of a meeting later on Wednesday with Germany's central bank and financial market watchdog and the country's largest banks to discuss stress test results.
The Swiss franc fell against the euro after Hungary said it was eyeing a new precautionary standby agreement with the International Monetary Fund for 2011. [ID:nBUD005390]
The move alleviated some concerns about Hungary's large stock of franc-denominated debt.
The euro was last up 0.5 percent at 1.3260 franc EURCHF=R after hitting a lifetime low of 1.3165 on Tuesday. It is down nearly 11 percent on the franc this year.
The dollar was steady at 88.67 yen JPY=, having lost nearly 1 percent on Tuesday as the rush to safety pushed U.S. two-year Treasury yields to record lows.
Support is seen at around 88.00 yen, the low struck on May 6, with one dealer citing talk of options in the 87.95-88.15 yen region due to expire later on Wednesday.
Traders will also keep an eye on U.S. ADP employment report ahead of nonfarm payrolls data on Friday. A higher-than-expected reading may give the dollar a lift after a slew of poor economic data recently.
The Australian dollar gained 0.9 percent on the dollar at $0.8543 AUD=D4 after falling more than 2.5 percent in the previous session. (Additional reporting by Naomi Tajitsu, Editing by Sonya Hepinstall/Toby Chopra)