FOREX-Euro flat vs dollar after two-day advance

(Adds quote, updates prices, adds details)

* Euro comes off one-month high, talk of $1.2450 option
barrier

* Aussie hits 4-1/2-month high, RBA holds rates steady

* Euro/Swiss franc steadies after spiking to five-month high

By Wanfeng Zhou

NEW YORK, Aug 7 (Reuters) - The euro traded little changed
against the dollar o n T uesday, taking a breather after a two-day
rally sparked by expectations of further action by the European
Central Bank to lower borrowing costs for Spain and Italy.

The Australian dollar rose to its highest in more than four
months against the greenback after the country's central bank
kept interest rates unchanged at 3.5 percent and dropped few
hints about easing soon.

Rising expectations that the ECB could step in as early as
next month to reduce crippling high Spanish and Italian
borrowing costs by buying their bonds have sparked a global
rally in risky assets since Friday.

"The euro's getting a lift because there are some plans
coming forward from the ECB to help ease the debt crisis," said
Brian Kim, currency strategist at RBS Securities in Stamford,
Connecticut. "Besides, there was too much short pressure on the
euro last week. This is sort of an alleviation of those shorts."

The euro was little changed at $1.2399, pulling away
from a one-month high of $1.2443 set o n M onday. Traders reported
talk of resistance at $1.2450.

Intraday bias in the euro remains on the upside, with the
next target at around $1.2764, the 50 percent retracement of the
move from the $1.3486 high hit in late February to $1.2040, the
more-than-two-year low struck on July 24.

Markets were initially disappointed last week when the ECB
failed to take immediate action to stabilize bond markets. But
traders took ECB chief Mario Draghi's warning not to bet against
the euro seriously and as a result the euro has gained momentum.

Italian Prime Minister Mario Monti's victory on Tuesday in a
vote of confidence on a bill that would cut spending to rein in
the deficit also helped the euro.

But uncertainties remained. There were concerns about the
potential for opposition from Germany, the euro zone's largest
country, to any large-scale bond-buying program.

"Skeptics remain and the ECB will have to replace rhetoric
with action sooner (rather) than later for this upward move to
gain any momentum," said Matthew Lifson, senior trader and
analyst at Cambridge Mercantile Group in Princeton, New Jersey.

"There are still people predicting the $1.2000 level in the
euro by year end."

Last week, the ECB indicated any intervention in sovereign
bond markets would not come before September and such a move
would come only if governments first applied for assistance from
the rescue funds.

EURO SPIKE VS FRANC

Late on Monday, the euro had briefly risen to its highest in
nearly five months against the Swiss franc on trading platform
EBS after a slew of computer-generated orders pushed it higher,
traders said.

The euro rose to 1.20928 francs after 2000 GMT on
M onday from around 1.2015 in a matter of minutes on EBS as the
algorithmic orders were executed. The euro soon dropped back
down and on Tuesday was last at 1.2013 francs, continuing to
hold just above the Swiss National Bank-imposed floor of 1.20
francs.

The Australian dollar hit a high of $1.0604, its
strongest since March 20, before retreating to $1.0553, down 0.1
percent. The Reserve Bank of Australia kept interest rates
steady and appeared in no hurry to cut borrowing costs again.

But the RBA's reference to the Australian dollar in its
accompanying statement caught some analysts' attention. The
central bank said the currency's exchange rate remains high
despite a drop in the terms of trade.

The dollar rose 0.5 percent to 78.62 yen, staying
above a two-month low of 77.90 yen struck last week.

(Additional reporting by Gertrude Chavez-Dreyfuss; Editing by
Dan Grebler)