* Euro briefly hits 2-week high vs dlr EUR= above $1.2350

* Improved risk tolerance supports single currency

* Analysts see upside correction potential, impetus lacking

The euro briefly hit a 2-week high on Wednesday, continuing its correction from a four-year low versus the dollar on improved tolerance for risk, but lacking momentum to tackle nearby resistance levels.

The single currency made a quick show above Tuesday's two-week peak at $1.2350 in early dealing, but by 0940 GMT it had slipped back to trade with slight losses at $1.2300.

"The euro's recent rally can continue. It's been tracking the improvement in risk and the higher-yielding currencies, but for now there's nothing to provide much of an impetus to take it significantly higher," said Stuart Bennett, senior FX strategist at Credit Agricole CIB.

US stocks had rallied strongly on Tuesday .SPX, but European markets couldn't replicate the move and were trading close to flat on the day .FTEU3.

Analysts said the recent recovery in the euro could be classed as a correction within the established downtrend.

"I see the recent rally as a correction from the four-year low at $1.1876 which doesn't negate the downtrend. There is potential for the correction to continue however as there are a lot of stale short positions out there," said Michael Hewson, currency analyst at CMC Markets.

Traders said worries over the credit outlook for Spain had served as a reminder that the euro remained vulnerable, as the premium investors demand to hold 10-year Spanish government bonds over German benchmarks hit a euro lifetime high.

Investors have fretted for more than a week about Spain's credit markets and comments from government sources urging action to free up bank-to-bank lending.

On Tuesday, investors had set aside concerns about the euro zone financial sector and soft economic data to buy riskier assets, higher-yielding currencies and the euro, looking on the bright side after Spain raised 5.2 billion euros at a debt auction and Belgium netted 2.5 billion euros.

Technical analysts were turning increasingly positive on the outlook for the single currency.

"We look for the correction higher to extend to $1.2445/1.2570 - the 2009 low and the 38.2 percent retracement of the move down from April," analysts at Commerzbank said.

The euro was up around 0.4 percent versus the yen at 113.10 yen EURJPY=R, as the Japanese currency weakened. >>