NEW YORK: The euro rose against the dollar for the first time in four days on Monday as investors pared bearish bets, but doubts about the ability of the European Central Bank to rein in the region's debt crisis should keep the currency under pressure.

Trade was thin and the euro remained below a one-month high hit last week. The euro rallied earlier this month after ECB President Mario Draghi pledged to do everything necessary to preserve the euro, which raised expectations the bank would buy Spanish and Italian bonds to lower borrowing costs for the two debt-plagued countries.

The single currency sold off in recent days due to the ECB's vagueness and disagreement among euro zone politicians, but investors decided the time was ripe to cover bets that the currency would fall.

“The euro is well below the highs of last week and today we are seeing some short covering, but the move today is generally uninspired in a lackluster session,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.

“This is just position squaring as there has been no major news today or over the weekend to cause the euro's strength,” Chandler said.

“People are parking funds until September, and the preference right now seems to be for higher yields, such as the Canadian and Australian dollars as well as the Mexican peso.” Many analysts expect the euro to tread water until Sept. 12, when the German constitutional court is to delivers its verdict on the euro zone rescue fund and the fiscal pact for budget discipline.

Currency moves were exaggerated by lower volumes with much  of the northern hemisphere on summer holidays.

The euro was last up 0.5 per cent at $1.2338, rising past reported stop-loss orders at $1.2310 and $1.2330 to hit a session high of $1.2373 on Reuters data.  Last week the euro hit a one-month high of $1.2443.

“The euro will likely stay in a range of $1.2275-1.2450 over the next few weeks,” said John Doyle, director of markets at Tempus Consulting in Washington, D.C.

“Headline risk, event risk and economic data could cause sharp price movements, but that should not be enough to break the euro out this range.”

Belgian central bank governor Luc Coene said in a newspaper interview that the ECB should ensure any help it gives to indebted countries comes with strict conditions.

And German magazine Der Spiegel on Sunday quoted Finnish Prime Minister Jyrki Katainen as saying Finland remained opposed to ECB bond-buying.

“There is no coherent message between politicians and policymakers,” said Jeremy Stretch, head of currency strategy at CIBC, adding that the euro's failure to break above $1.2450 would leave traders inclined to sell it on rallies.

The risk of politicians disagreeing on ECB action was likely to see traders selling the euro, he said.

Euro zone second-quarter economic output data to be released on Tuesday is expected to show a contraction and is likely to put pressure on the ECB to cut interest rates, another factor that may weigh on the euro.

JAPANESE DATA

The safe-haven Japanese yen showed little reaction to weaker-than-expected economic growth in Japan in the April-June period.

Analysts said the sluggish economic activity raised expectations that the Bank of Japan and the government were ready to provide additional stimulus, a move that could push the yen lower in the near term.

The US dollar was up 0.1 per cent at 78.32 yen, holding above a two-month low of 77.90 yen hit in early August, while the euro rose 0.5 per cent to 96.64 yen, according to Reuters data.