* Caution sends investors to sidelines before EU summit
* Spanish short-term borrowing costs jump at auction
* U.S. stocks rise, reverse Monday's steep losses
* Euro falls to two-week low vs U.S. dollar (Recasts lead)
By Richard Leong
NEW YORK, June 26 (Reuters) - Wall Street stocks rose and the euro fell to its lowest level versus the U.S. dollar in over two weeks on Tuesday, as technical buying offset a near tripling in Spanish debt costs on doubts a European summit can ease the region's debt crisis.
Low expectations for the meeting in Brussels on Thursday and Friday helped drive Spanish short-term borrowing rates to their highest in more than six months when the country sold just over 3 billion euros ($3.8 billion) of three- and six-month debt.
In the United States, data pointed to a surprisingly strong April rise in home prices, boosting U.S. housing shares. The mildly encouraging figures on housing were mitigated by data signaling a deterioration in consumer confidence, which stoked concerns about slowing U.S. growth.
Anxiety over a global economic slowdown underpinned by the fiscal troubles in the euro zone led analysts to conclude any bounce in stock prices could be short-lived.
"This is a classic exhaustion rebound. The selling intensity was pretty high yesterday, and technically, we were due for a short-term rebound," said James Dailey, portfolio manager of TEAM Asset Strategy Fund in Harrisburg, Pennsylvania.
"But these gains are really unsustainable. I think we have entered the bear market cycle already, and these (gains) could disappear any minute."
Investors pared their safe-haven holdings in gold as well as U.S. and German government debt.
They bought Brent oil futures, which rose above $93 a barrel on a strike in Norway that threatened North Sea supply, expectations of falling U.S. crude inventory and rising tension over Syria.
At the close, the Dow Jones industrial average edged up 32.47 points, or 0.26 percent, to 12,535.13. The S&P 500 Index gained 6.32 points, or 0.48 percent, to 1,320.04. The Nasdaq Composite rose 17.90 points, or 0.63 percent, to 2,854.06.
The FTSEurofirst 300 index of Europe's top shares closed up 0.02 percent at 986.63 points, wiping out an earlier 0.4 percent rise.
In Tokyo, the Nikkei index finished down 0.8 percent at 8,663.99.
MSCI's world equity index was up 0.33 percent at 1,192.32, snapping a three-session losing streak.
In the currency market, the euro fell to $1.2440, its lowest level in more than two weeks against the dollar, before paring its decline to end down 0.09 percent at $1.2491.
The dollar firmed against other major currencies as the euro weakened. The dollar index was down 0.16 percent at 82.361, erasing a modest rise.
"The euro is going to trend lower, but I don't think you're going to see any large moves ahead of the summit," said John Doyle, senior strategist at Tempus Consulting in Washington.
"I don't think, realistically, that anyone is expecting a magic bullet to come out of this meeting and to fix all the underlying problems in Europe."
Spain's formal request on Monday for European aid along with a downgrade by Moody's of 28 of its banks, plus news that Cyprus had become the fifth euro zone member to request a bailout, curbed the appetite for riskier assets.
German Chancellor Angela Merkel was quoted as telling a meeting of one of the parties in her coalition on Tuesday that she does not think Europe will have shared total debt liability in her lifetime.
Finance ministers of the four biggest euro zone economies were holding last-minute talks in Paris on Tuesday to try to narrow differences on how to manage the crisis.
The summit will discuss a plan to create a euro zone treasury which could issue regionally backed bonds as the final stage of a fiscal union but with a recognition that this may take years to implement.
In commodity markets, Brent crude oil for August delivery settled up $2.01 or 2.21 percent at $93.02 a barrel. U.S. oil futures settled up 15 cents or 0.19 percent at $78.36 a barrel, extending earlier losses.
Gold fell 0.8 percent at $1,571.34 an ounce while copper closed up $25 or 0.3 percent at $7,359.15 per tonne .
In bond trading, benchmark U.S. Treasury notes were down 9/32 in price at 101-2/32 for a yield of 1.63 percent, up 3 basis points from Monday's close. German Bund futures were down 62 basis points or 0.4 percent at 141.53. (Additional reporting by Chuck Mikolajczak and Wanfeng Zhou in New York; Richard Hubbard and Jessica Mortimer in London; Editing by Chizu Nomiyama and Andrew Hay)