* Euro gains on prospects of deal on Greece funding
* But disagreements between IMF and euro zone limit its rise
* Better signs on U.S. fiscal cliff lift riskier currencies
* Yen falls to 7-month low vs dollar on Japan easing worries
By Anooja Debnath
LONDON, Nov 19 The euro rose against the dollar on Monday as optimism grew that deals may be in prospect on more funding for Greece and on tackling the U.S. "fiscal cliff".
However, analysts said concerns about differences of opinion between euro zone officials and the International Monetary Fund may limit the euro's gains. Euro zone finance ministers are due to meet on Tuesday to discuss Greece's debt problems.
The euro was up 0.2 percent at $1.2763, having earlier hit a high of $1.2788. Traders said it may struggle to vault last week's high of $1.28025 and chart resistance at its 200-day moving average around $1.2807.
European Central Bank policymaker Joerg Asmussen said on Sunday the euro zone should agree on two years of funding for Greece, while German Finance Minister Wolfgang Schaeuble said he was banking on a deal on Tuesday.
But they may encounter opposition from the IMF, which wants a permanent solution to Greece's debt problems.
"Hopes that maybe we will get better news out of Greece is providing a little bit of support to the euro," Daragh Maher, currency strategist at HSBC. "I am not supremely confident (of a resolution being reached on Tuesday). The history of this process has been one of delays."
But he said investors would not sell the euro aggressively because the issue was still likely to be resolved at some point. He added that a close above the 200-day moving average would increase investor confidence in holding euros.
Optimism that U.S. lawmakers would overcome major fiscal policy disagreement lifted equities and riskier currencies like the euro. The higher-yielding Australian dollar rose 0.5 percent to $1.0391.
On Friday, Republican and Democratic congressional leaders said they would be flexible in efforts to settle differences to avert a $600 billion "fiscal cliff" of tax hikes and spending cuts.
Analysts at Morgan Stanley recommended buying the euro at $1.2730, with a target of $1.33 and a stop at $1.2650.
They expected progress towards a compromise on the next payment of funds for Greece, which should support the euro, and that Spain would apply for a bailout, paving the way for the European Central Bank to buy its bonds.
The dollar fell 0.2 percent at 81.14 yen, having hit a seven-month high of 81.59 yen on trading platform EBS.
This marked its highest level since April 25 as the yen extended recent falls on concerns the Bank of Japan would be compelled to ease monetary policy further if an opposition-led government came to power.
Investors sold the yen after elections were called for Dec. 16 and the leader of the opposition Liberal Democratic Party called on the BOJ to print "unlimited yen" and set rates at zero or below.
But investors were wary of pushing it much lower before a BOJ policy announcement on Tuesday. most analysts expect it will not announce additional monetary easing.
"It's most unlikely the BOJ will make major changes this meeting, but the trend (for the yen) seems to be changing," said Audrey Childe-Freeman, head of foreign exchange strategy at BMO Capital Markets.
Traders cited stop loss buy orders at 81.75 and 82.00 yen, with option barriers reported at those levels too. However, an options expiry at 81.25 yen due later in the day may keep the dollar close to that level.
The euro rose 0.2 percent against the yen to 103.78 yen , having earlier hit a three-week high of 104.15 yen.
Some market participants said the yen may find support after last week's 2.4 percent drop against the dollar -- the Japanese currency's biggest weekly percentage drop in nine month -- though over the longer term it was expected to fall.
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