AppId is over the quota
* Euro rises after Germany, France pledge to recap banks
* Single currency's rise extends on short-covering
* Trading thin due to Japan holiday
By Masayuki Kitano
SINGAPORE, Oct 10 (Reuters) - The euro rose on Monday, buoyed by a flurry of short-covering after leaders of Germany and France promised a new comprehensive plan by the end of the month to recapitalise euro zone banks.
The meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy offered no details, but drew a pledge to do what is necessary to shore up banks, settle the Greek debt crisis and help growth in Europe, giving a gentle boost to risk sentiment. .
Market players, however, remained cautious given the lack of details and since EU leaders have promised several times before to resolve the debt crisis, to no avail.
"The positive response could simply reflect the fact that positioning is now more balanced following earlier risk reduction," Todd Elmer, currency strategist at Citi in Singapore, said in a research note.
"It looks unlikely that EUR gains can be sustained absent further positive developments," he added.
The euro climbed 0.7 percent to $1.3475 , pulling away from a nine-month low of $1.3145 hit last week on trading platform EBS. The single currency's rise gained steam after it breached hourly resistance at $1.3423.
Concrete steps to recapitalise euro zone banks could offer some relief to the euro, which has been dogged by mounting worries about the impact of the euro zone's debt crisis on the European banking sector.
France, Belgium and Luxembourg agreed early on Monday a rescue plan for Dexia bank, while other French banks have come under intense pressure because of their exposure to Greece and other weak European countries.
BNP Paribas and Societe Generale denied they would seek to raise a combined 11 billion euros as part of a broader European recapitalisation plan.
Market liquidity was lower than usual with Japan on holiday, a factor that may have helped exaggerate the euro's rise. Market positioning was another contributing factor, traders said.
"On the open, Sydney ran the sell stops down through Friday's lows in EUR/USD... So now that those orders are done, path of least resistance is up I guess," said a U.S.-based trader.
A trader for a major Japanese bank in Singapore said short-covering helped fuel the euro's latest rise.
"When positions accumulate, various things can trigger this type of short-covering," he said, adding that short positions in the euro had increased on Friday, when Fitch cut the credit ratings of Italy and Spain.
The pledge from Merkel and Sarkozy to come up with fresh measures to solve the euro zone's debt crisis lent support to equities and helped nudge the Australian dollar higher.
The Aussie dollar rose 0.7 percent to $0.9836 , pulling away from a one-year low of $0.9388 hit last week.
One risk for the euro and risky assets in general is the fact that the next aid tranche for Greece is far from being a done deal with the IMF indicating the nation is at a crossroads and will need to implement "much stricter structural reforms" than seen so far.
Athens could run out of cash as soon as mid-November without the new 8 billion euro aid installment, increasing the risk of a default that would drag the region deeper into a debt crisis already shaking financial markets worldwide.
The dollar held steady against the yen at 76.74 yen in light trading with Tokyo players away on holiday.
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