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FOREX-Euro falls to one-week low on Greek jitters

* Euro falls on Greek debt worries

* Reports that deal getting closer, but picture still mixed

* Market looks to euro zone meeting

* Upbeat U.S. jobless data revives early Fed rate hike views

By Jemima Kelly

LONDON, Feb 20 (Reuters) – The euro fell to a one-week low against the dollar on Friday on concerns that a crucial meeting on Greece’s request for a six-month loan extension could end without easing the country’s funding crisis.

Reports suggesting that Greece and its euro zone creditors were getting closer to a deal appeared to do little to calm investors, with the safe-haven yen gaining 0.8 percent against the euro to trade at 134.125 yen.

A German magazine report that European Central Bank officials were preparing contingency plans for keeping the rest of the euro zone intact in the event of a Greek exit briefly pushed the euro below $ 1.13 against the dollar, before it recovered a touch to trade at $ 1.13165, down 0.5 percent on the day.

Meanwhile, Germany said Greece’s latest debt proposal was a “good signal” although it did not go far enough in its present form.

“The risk is, with some of these slightly positive headlines starting to appear, that we kick off Monday morning still with no apparent resolution,” said Adam Cole, global head of FX strategy at RBC Capital Markets in London.

“The kneejerk reaction is the euro lower on that,” he said adding that “it could potentially get messy.”

Greece’s EU/IMF bailout programme expires on Feb. 28, and Prime Minister Alexis Tsipras, who won power promising to ditch the bailout, needs to secure a financial lifeline to keep the country solvent beyond late March.

So far, guarded optimism has prevailed in the market, chiefly on the grounds that failure to strike a deal would be too costly for both sides. It could lead to Greece’s defaulting on its debt and exiting the euro zone.

“The reason that the euro is not lower is that a lot of people still have this sanguine view that there will be an agreement because they have to reach one,” said Adam Myers, European head of FX strategy at Credit Agricole. “… At the moment the market reaction is too sanguine.”

Better-than expected business data from the euro zone had little effect on the single currency as investors focused on Greece.

The dollar added to gains made on Thursday’s upbeat U.S. jobless claims data, rising 0.3 percent against a basket of currencies as investors’ bets swung back in favour of a nearer-term interest rate hike by the U.S. Federal Reserve. .

(Editing by Larry King and John Stonestreet)

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