4:26pm EDT
* ECB downplays report on bond buying
* Der Spiegel says ECB considering setting yield thresholds
* Options market shows less euro put bias
* Dollar drops from five-week high against Japanese yen
By Julie Haviv
NEW YORK, Aug 20 (Reuters) - The euro rose modestly against the dollar on Monday in subdued summer trade as uncertainty about the scope of possible European Central Bank action to contain the region's debt crisis had investors refraining from making large bets.
Speculation the ECB will restart its bond-buying program to bring down borrowing costs in Spain and Italy has helped the euro rise from above a two-year low of $1.2040 touched in late July, but headlines out of Europe have since left the single currency highly susceptible to powerful bouts of buying and selling.
The euro had earlier slipped after the ECB brushed aside a report in Germany's Der Spiegel magazine that it was considering setting yield thresholds for any moves to buy the bonds of the euro zone's struggling sovereign debtors.
The ECB said it was misleading to report on decisions that had not yet been taken. Traders said the Der Spiegel report had boosted the euro by lending weight to the view the ECB would revive its controversial bond-buying program.
"It is unlikely the euro will move much higher until there is something more concrete from the ECB," said Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman in New York.
"While the market is quiet, upcoming events have a lot of people in a wait-and-see mode," he said.
Data will be one of the market's primary focuses this week. The provisional estimates for euro zone purchasing managers' surveys are due for release on Thursday and traders await possible hints on a euro zone crisis solution later this week.
French President Francois Hollande and German Chancellor Angela Merkel will meet on Thursday, a day before Greek Prime Minister Antonis Samaras arrives in Berlin.
The next ECB meeting is in early September.
Germany's central bank reasserted its concerns about ECB bond purchases, which it said posed "considerable risks to stability" despite the gains midway through the session.
"There are back-and-forth comments regarding ECB actions," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, D.C. "All of this is taking place against the subdued late summer trading backdrop so I wouldn't read too much into any of this."
The euro rose 0.1 percent to $1.2348, nearer to the session peak of $1.2368 than the session low of $1.2293, and staying within the $1.2240-1.2450 trading range seen in recent weeks.
"This is a professional trading environment not characterized by the long-term investor," said Michael Woolfolk, an FX strategist with BNY Mellon in New York. "The current mood is modestly risk-on, but not because they want to take on more long euro positions, but rather less short euro positions."
Market players have been wary about German opposition to ECB bond-buying. But German Chancellor Angela Merkel last week offered a robust defense of ECB chief Mario Draghi, who has been widely criticized in Germany for promising to do "whatever it takes to preserve the euro," and signaling his readiness to resume the controversial bond buying program.
Against the yen, the euro fell 0.1 percent to 98.02 yen , below a six-week high of 98.40 yen hit on Friday.
In the options market, investor demand for puts, or the right to sell euros, has waned somewhat in recent weeks, with three-month euro/dollar risk reversals trading at 1.7 percent on Monday, down from 2.025 percent a week earlier and 2 percent at the start of August.
Implied volatility, a gauge of price expectations, in the currency pair traded at 9.45 percent on Monday, up from 9.30 percent a week earlier, but down from 10.70 percent at the start of the month.
The dollar was down 0.2 percent at 79.38 yen, after having hit a five-week high of 79.66 yen in early Asian trade. Despite the recent move, analysts said the dollar should continue to gain from improvements in U.S. economic data that have lifted Treasury debt yields.
Analysts say if Federal Reserve minutes from its last meeting later this week show there has been an active discussion at the U.S. central bank to provide additional monetary stimulus, this could put the dollar back under pressure and generate a rally in higher-risk assets.
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