NEW YORK, June 18 (Reuters) - The euro held near a three-week high against the U.S. dollar on Friday, heading for its biggest weekly gain in more than a year as results of Spain's bond auctions eased worries about the European debt crisis.

But the dollar appeared increasingly vulnerable to further losses after falling below a key chart level.

The euro steadied around $1.24 after a solid Spanish government bond auction on Thursday eased concerns about the country's public finances and investors unwound the large short positions accumulated during the currency's sell-off in recent months.

The dollar slipped, especially against the Japanese yen, after disappointing U.S. economic data this week prompted investors to scale back expectations of a U.S. Federal Reserve interest rate rise.

We had some nice euro gains and dollar weakness over the course of this week. We're going to see whether the euro is going to sustain these gains and press on toward $1.25, said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey.

But if we see a move back below $1.2340/50, it looks like we might see some end of week profit-taking and selling of euros, he added.

In early New York trading, the euro was last at $1.2369 EUR=, down 0.1 percent, after rising as high as $1.2417 on electronic trading platform EBS, a three-week high.

The dollar dipped to a three-week low against the yen at 90.45 yen JPY=, and was last at 90.64 yen, down 0.4 percent.

The Swiss franc gained after Switzerland's central bank on Thursday backed away from its pledge to fight excessive currency strength and said that for now deflation risks have receded. [ID:nLDE65E1W2]

The euro slid to a record low EURCHF= at 1.3730 Swiss francs, according to Reuters data, while the dollar hit a one-month low of 1.1090 francs CHF=.

REBOUND FACES STRESS TEST RESULTS

The euro has rebounded about 2 percent against the dollar this week, the biggest weekly rise since May 2009, pulling the currency further away from its four-year low of $1.1876 struck on EBS on June 7.

The euro remains upside corrective and on track to test the $1.2445 2009 low and inter-year pivot, technical analysts at Commerzbank said.

Traders also said options with a strike price at $1.2400 were set to expire later in the day. Option barriers were lurking around $1.2450, capping the upside, they added.

A continuation of this rally, however, seems subject to the results of the stress tests that have been agreed to for European banks.

European leaders agreed on Thursday to publish details of stress tests showing the financial health of big banks next month. Some in the market said the release of stress tests would boost trust in European banks but others were concerned they could reveal fragility in the sector and hurt the euro.

They could be quite significant if they in fact show that significant capital needs to be raised by some of the major European banks, Forex.com's Dolan said. Euro zone is by no means out of the woods.

Analysts at BNP Paribas see the euro's corrective rebound running out of steam at around $1.2525, saying flows data suggest the current rebound is not backed by real money investment flows.

The dollar index .DXY was flat at 85.679, after falling to a one-month low at 85.453. Technically, it looked vulnerable after it broke through support at 85.85, with the next key level seen in the 85.13 area, its May 21 low.

(Additional reporting by Tamawa Desai in London) (Editing by Theodore d'Afflisio)

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