* Euro hits 1-week high vs USD, above tenkan line
* Euro rebound may lose steam if no concrete steps from G7
* Some speculate ECB might act on Wed
* Aussie gains after 25 bp cut, market expects more cuts
* Short-term dlr/yen call options in favour on intervention fears
By Hideyuki Sano
TOKYO, June 5 (Reuters) - The euro extended gains to a one-week high on Tuesday as some sellers pared back their huge bets against the currency ahead of a conference call by the Group of Seven financial policy makers on the European debt crisis.
Although market players remain sceptical of a major breakthrough given a lack of consensus within Europe on how to save Spanish banks and on other matters, there was caution in case the meeting leads to some kind of policy agreement, given record short positions on the euro.
"It will take a long time to resolve the debt crisis. I don't expect European policy makers to come to an agreement soon. I am ready to sell the euro around $1.2550," said a trader at a Japanese bank.
The euro rose to as high as $1.25429, its highest in a week, extending its rebound from a two-year low of $1.2288 reached on Friday. It last stood at $1.2520, up 0.2 percent from late U.S. levels.
On the daily Ichimoku chart, the euro rose substantially above the tenkan line for the first time in about a month and if it closes above that level, at $1.24565 on Tuesday, it could herald further recovery in the battered currency.
Immediate resistance for the euro lies at $1.2545, the 76.4 percent Fibonacci retracement of its decline last week and above that there is resistance at $1.2570, the 23.6 percent retracement of its longer term decline from a February high of $1.34869.
Against the yen, the single currency rose 0.3 percent to 98.22 yen, moving off Friday's 11-year low of 95.59 yen. It hit a fresh one-month high against the British pound at 81.405 pence.
News that finance chiefs from the Group of Seven leading industrialised powers will hold emergency talks on the euro zone prompted some market players to speculate that the European Central Bank could yield to additional pressure.
"They may put pressure on the ECB to do something," said Eiji Kinouchi, chief technical analyst at Daiwa Securities.
Some market players said ECB President Mario Draghi may embark on pre-emptive moves and surprise markets, as he did last year just after he took over the helm at the bank. They added that the ECB could implement a rate cut or a massive injection of funds.
Financial markets are anxious about the risks from a Spanish banking crisis and fret a Greek election on June 17 could lead Athens to leave the single currency and precipitate yet more economic turbulence.
France and the European Commission signaled their support on Monday for an ambitious plan to directly use the euro zone's permanent bailout fund to rescue stricken banks.
But Germany, the euro zone's biggest economy and the biggest contributor to the European Stability Mechanism, has so far opposed any use of bailout funds without a country having to submit to a politically humiliating austerity programme imposed by international lenders.
In a sign of increasing concern about the impact of the euro zone debt crisis, the Reserve Bank of Australia cut interest rates by 25 basis points but the cut was less than some had expected, sending the Australian dollar higher .
Local money markets had been pricing in a rate cut of at least 25 basis points, with some players looking to a deeper 50 basis point cut.
The Australian dollar rose close to 0.7 percent to $0.9784 , extending its recovery from an eight-month trough of $0.9581 hit on Friday.
Still, some market players see the Aussie trapped in a downtrend as they expect the Australian central bank to cut rates further in coming months.
The Japanese yen moved little against the U.S. dollar at 78.33 yen, off Friday's 3 1/2-month low of 77.652 yen, helped by wariness about Japanese yen-selling intervention as Japanese Finance Minister Jun Azumi has stepped up his rhetoric against the yen's rise.
Some market players are buying short-term dollar/yen calls to bet on, or hedge against intervention, pushing the one-week risk reversal spread to its highest level in favour of dollar calls in six months. (Additional reporting by Antoni Slodkowski; Editing by Edwina Gibbs)