* Euro slips after huge rally the previous day * Asset managers still need to trim short euro positions * High yields, low bid-to-cover at Italian debt auction * Dollar/yen stuck near record low By Neal Armstrong LONDON, Oct 28 (Reuters) - The euro eased on Friday from a seven-week peak scaled following a summit deal on Europe's debt crisis, with an Italian bond auction showing investors have yet to be convinced the region's problems are on the way to being solved. The EU deal included an agreement that private banks and insurers would accept 50 percent losses on their Greek debt holdings, a leveraging of the EU's EFSF bailout fund and a recapitalisation of banks. The euro remains vulnerable, however, as the EU still needs to find the money for the newest version of its bailout fund, with doubts lingering as to whether its new size of around 1 trillion euros ($1.4 trillion) will be enough to staunch the crisis. Investor scepticism was highlighted on Friday when Italy paid the most since the launch of the single currency to sell new 10-year debt in the first euro zone bond auction since European leaders agreed their anti-crisis measures. "Although we're getting somewhere with the EFSF, the Italian auction shows the market is sending signals that the crisis hasn't been solved by a long shot," said Stephen Gallo, head of market analysis at Schneider FX. Gallo thought the euro's rally could extend to $1.4700 if macro investors jumped on to the near-term trend, but said outright buying of the common currency was still to materialise, adding this month's rally from a low of $1.3145 has been driven by a squeeze of short positions. The euro, which hit a seven-week high of $1.4248, was down slightly on the day around $1.4150 . Traders pointed to small offers starting to build up above $1.4200 and stops at $1.4260, with bids reported back at $1.4120/00. "The rally can continue because asset managers are still quite short of the euro and it could take a move to $1.44 before their positions are back to neutral" said Manuel Oliveri, currency strategist at UBS in Zurich. Speculators and investors have been heavily short of the common currency in recent months as concerns about the euro zone's debt crisis spreading to larger countries within the bloc intensified. Technical analysts said the euro's outlook had been boosted by Thursday's close above the 200-day moving average, now seen as support around $1.4100. They are also looking for a weekly close above the 200-week moving average at $1.3989 to add to the positive picture. NURSING LOSSES The dollar steadied after sustaining heavy losses that caused its biggest one-day decline in more than two years against other major currencies, with more drops looming ahead. The liquid dollar, with its near-zero interest rates guaranteed over the next two years, was sold as investors used it to fund forays into riskier trades. Against the yen, the dollar was at 75.85 yen , having carved out yet another all-time low around 75.66 on Thursday. The dollar index was last at 75.052, up slightly on the day, having dropped from as high as 76.299 on Thursday. Commodity currencies, among the biggest gainers on Thursday, fell prey to profit-taking. The Australian dollar was down 0.5 percent at $1.0675 , having surged on Thursday to $1.0753 from sub-$1.0400 in its biggest one-day rally in 16 months.
