* Euro rises from seven-week lows vs yen
* U.S. data mixed but helps dollar vs yen
* Solid demand at Irish, Spanish bond auctions (Updates prices)
By Wanfeng Zhou
NEW YORK, Aug 17 (Reuters) - The euro rose against the dollar and rebounded from a seven-week low against the yen on Tuesday, as solid Irish and Spanish bond auctions eased concerns about heavily indebted countries in the euro zone.
But the euro struggled to hold above $1.29 amid uneasiness about the bloc's economic outlook, with a key German survey sparking concerns about whether Europe's largest economy can sustain a solid recovery.
"We've seen a pretty choppy market and a lot of that has to do just with all the mixed messages we've been getting today," said Dan Cook, a senior market analyst at IG Markets in Chicago.
In late New York trading, the euro EUR= moved up 0.4 percent at $1.2880, with key support at a one-month low around $1.2732 hit on Monday, traders said.
Ireland's sale of 2014 and 2020 paper was viewed as a litmus test for investor appetite amid concerns about the cost of cleaning up the country's banking sector. Sales of 12- and 18-month Spanish treasury bills also saw strong demand on Tuesday. For details, see [ID:nLDE67G0M1]
According to Reuters data, the euro touched a session high of $1.2915 after the government bond auction results as stop-losses were hit on the break of $1.2910.
Analysts at Credit Agricole said while euro/dollar is moving higher, momentum is waning while speculative positioning reveals there's less room for short covering. "A lot of good news is in the price," they said in a note.
The German ZEW institute's measure of investor and analyst economic sentiment dropped well below forecasts, though the move was partly offset by an unexpectedly sharp jump in the current conditions index. [ID:nDEG005695]
There was little market impact from U.S. data on Tuesday showing a rise in producer prices in July for the first time in four months and a weaker-than-expected rise in housing starts, although the data did ease some deflation concerns. [ID:nN17118370]
A third report indicating U.S. industrial production expanded in July at twice the clip expected helped the dollar against the yen, market watchers said. [ID:nN17175177]
"Forex markets are just taking a breather after the violent swings of last week in euro/dollar and dollar/yen," said Camilla Sutton, currency strategist at Scotia Capital in Toronto. "Traders are still looking for a catalyst to take the dollar in one direction or the other."
YEN GAINS LIMITED -- FOR NOW
The euro rose 0.6 percent against the yen to 110.09 yen EURJPY=.
The dollar JPY= traded 0.2 percent higher at 85.49 yen though analysts cautioned against reading too much into the move. Earlier, the dollar slid to 85.11 yen on electronic trading platform EBS JPY=EBS, nearing a 15-year low of 84.72 yen hit last week.
"The sentiment out there is there are still problems to come, and with the 10-year yield at 2.60 percent, there's absolutely no reason for the dollar to rally against the yen right now," said Brian Dolan, chief currency strategist at Forex.com, in Bedminster, New Jersey. "We expect another run at 85 yen and then a move to the 84.70-80 area."
Further yen gains were capped by concerns about possible moves by Japanese policymakers to stem the yen's rise. A government source said Prime Minister Naoto Kan and the central bank governor were likely to meet next Monday. [ID:nTOE67G02K]
When asked about the meeting, Kan told reporters: "We have been communicating with the BOJ in various ways as needed. We hope to continue communicating as necessary with the central bank."
One-week implied volatility for dollar/yen JPY1MO= fell to around 11 on Tuesday from above 12 percent last week.