FOREX-Euro tests upside as short-covering continues

* Euro reaches two-week highs vs yen

* Aussie sinks after downbeat domestic jobs data

* Surprisingly soft NZ inflation knocks wind out of NZD

By Lisa Twaronite and Ian Chua

TOKYO, Jan 19 (Reuters) - The euro pushed higher in Asia on Thursday after overnight news that the International Monetary Fund wants to bolster its war chest to help tackle the euro zone debt crisis, but downbeat Australian jobs data rained on the Aussie's parade.

The euro climbed as high as $1.2880, from $1.2855 late in New York, rising further from Friday's 17-month low of $1.2624 on the EBS trading platform. A break above the Jan. 13 peak at $1.2879 and its 21-day moving average at $1.2875 would open up a test of the Jan. 5 high of $1.2946.

Against the yen, the euro was buying 98.79 yen, after hitting a two-week peak of 98.90 yen on Wednesday. Since dropping to an 11-year nadir of 97.04 yen on EBS on Monday, it has gained about 2 percent.

While concerns about the euro zone's debt woes will continue to pressure the single currency, some strategists say its present short-covering rally could have room to run.

"The euro could target 90 yen within this year, but for now, everyone is underweight euro and covers short positions whenever there is good news about Europe," said Citibank Japan's chief foreign exchange strategist Osamu Takashima.

The IMF is seeking to more than double its war chest by raising $600 billion in new resources to help countries deal with the fallout from the euro zone debt crisis.

One risk to continued euro gains is Greece's need to reach a bond swap deal with its creditors to avoid the prospect of default when 14.5 billion euros of bond redemptions come due in March.

The single currency's break above $1.3145, the major low in October, could signal a bottom has formed, traders said, but many remained sceptical the euro could break above the $1.30 level. Some investors were said to be replacing cash positions with downside puts, with maturities set after the Greek bond redemptions on March 20.

Bond sales from Spain and France on Thursday will also test market sentiment. So far, debt sales in the euro zone have gone without a major hitch in the wake of Standard & Poor's mass downgrade of euro zone sovereigns last Friday.

Portugal on Wednesday managed to sell all of its planned issuance of 2.5 billion euros of treasury bills, while Germany's auction of two-year bonds drew strong demand.

The buoyant euro helped push the dollar index to two-week lows. It last stood 80.421, down 0.2 percent and recoiling further from a 16-month peak of 81.784 hit on Friday. Firm support was seen around 80.100, near the Jan. 5 trough and the 23.6 percent retracement of the October to January rally.

Against the yen, the dollar was little changed at 76.73 .

The improved risk appetite that lifted the euro also helped commodity currencies overnight, and they were boosted further by gains on Wall Street after Goldman Sachs' earnings exceeded analysts' expectations and dispelled some anxiety over bank profits.

But the Aussie dollar dipped to a session low of $1.0378 after data showing Australian employment fell by 29,300 in December, compared to market expectations for an increase of 10,000. It last stood at $1.0399, down 0.3 percent and moving away from an 11-week high of $1.0450 set on Tuesday and also falling below its 200-day moving average at $1.0407.

Labour market weakness could shore up expectations for a third rate cut at the Reserve Bank of Australia's Feb. 7 policy meeting. Full time employment rose by 24,500 and the unemployment rate came in at 5.2 percent, slightly below market expectations of 5.3 percent.

Surprisingly soft inflation data in New Zealand also knocked some 50 pips off the kiwi in early Asian trade, although at $0.8028, it remained not far off its 2-1/2 month peak of $0.8082 set overnight.

"It highlights, along with other data, that the domestic economy is waning, and it provides the RBNZ (Reserve Bank of New Zealand) the ability to cut rates if it needed to," said Philip Borkin, an economist at Goldman Sachs. (Additional reporting by Masayuki Kitano in Singapore, Antoni Slodkowsski in Tokyo and Reuters FX analyst Krishna Kumar in Sydney; Editing by Joseph Radford)