* Euro up 0.5 pct at $1.3486 <EUR=>
* Greece launches 7-year bond; eyes on results
* Risk sentiment boosts Aussie, NZ dollars
By Tamawa Desai
LONDON, March 29 (Reuters) - The euro edged off highs on Monday after Greece launched a highly-anticipated sovereign bond issue, while investors flocked to riskier assets including the Australian and New Zealand dollars.
The euro had risen earlier on short-covering after euro zone leaders agreed on a financial safety net for Greece late last week, but the market remains wary about Greece and other euro zone peripheral countries.
Greece opened books on a seven-year benchmark euro bond, lead managers said. Guidance on the Greek bond sale was mid-swaps +310 basis points area. [ID:nWLB1118]
Chris Turner, head of FX strategy at ING, said: "Greece needs to show it can issue substantially inside of the mid swaps plus 300 basis points achieved for its 5-year bonds issued at the start of the month."
"Otherwise, the Eurogroup aid package will have failed in its core aim of bring confidence back to the market."
The spread between Greek and benchmark German 10-year government bonds widened to 311.5 basis points from 306 basis points after the announcement, and the euro dipped some 30 pips against the dollar but remained higher on the day.
By 1011 GMT, the euro was up 0.5 percent from late U.S. trade on Friday at $1.3486 <EUR=>. It hit a 10-month low of $1.3267 on trading platform EBS last week as concerns about fiscal problems in the euro zone drove selling.
The euro, which rebounded late on Friday from 10-month lows as short positions became overstretched, charged above $1.35 early in the Asian session as stops went off in thin trade.
The market had been sitting on record short euro positions, helping drive the early squeeze higher. [IMM/FX] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
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"The EU agreement on Greece instilled some confidence and we are seeing a degree of a relief rally although a modest one," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.
"Greek yields are still elevated, and Greece is not out of the woods yet by any stretch of the imagination."
The EU agreed late last week that Athens would get coordinated bilateral loans from other euro zone countries and the International Monetary Fund only if it faced severe difficulties. [ID:nLDE62N2R1]
Data on Monday showed annual inflation in four German states picked up in March, the first sign on the pace of inflation in the broader euro zone this month. [ID:nLDE62S0NN] Euro zone consumer inflation data is due out on Wednesday.
Separate data showed an improvement in euro zone economic sentiment. [ID:nBRQ009793]
The dollar <JPY=> rose 0.1 percent from late New York trade on Friday to 92.62 yen, erasing earlier losses on selling by Japanese exporters before the fiscal year-end on Wednesday.
Traders said the market was positioning for an improvement in monthly U.S. jobs data, due out on Friday, with a pick-up in the labour market seen as a key indicator for U.S. rate policy.
The Australian <AUD=D4> and New Zealand dollars <NZD=D4> both gained 1.0 percent on the day. The Aussie was helped by comments from Reserve Bank of Australia Governor Glenn Stevens, who said interest rates had been too low and could not remain at previous levels. [ID:SGE62R02Y] (Additional reporting by Satomi Noguchi in Tokyo; graphics by Scott Barber; Editing by Susan Fenton and Toby Chopra)