* Euro rallies after French, German meeting in Berlin
* Market talk of larger bailout boosts single currency
* Greek govt vote of confidence looms after reshuffle (Recasts, updates prices, adds details and quote, changes dateline, previous LONDON)
NEW YORK, June 17 (Reuters) - The euro rose on Friday on hopes for a new Greek aid package and as Germany vowed to work with the European Central Bank to resolve the crisis, although the currency remained vulnerable absent a concrete solution.
German Chancellor Angela Merkel and French President Nicholas Sarkozy told a news conference after meeting on Friday that a solution had been agreed in line with the "Vienna Initiative." For more see [ID:nB4E7GN04A] and [ID:nLDE75G0UT].
Under that 2009 pact international lenders agreed to boost credit for central and eastern Europe and the main commercial banks committed to maintain exposure and roll over credit lines.
Analysts said the comments were nothing new but European shares turned positive and Greek bond yields and CDS fell as risk appetite improved across those asset classes.
Merkel and Sarkozy's endorsement of a 'Vienna'-style rollover of Greek debt offered encouragement on an emerging consensus on Greek aid, said Mark McCormick, currency strategist at Brown Brothers Harriman.
But McCormick also added a note of caution, saying: "While we still believe that a new Greek package will be forthcoming, we warn of ongoing headline risk from rating agencies, the IMF, euro zone politicians and the ECB."
The euro rose to a session high of $1.4300 before paring gains to trade at $1.4253, still up 0.3 percent on the day
It also turned positive against the Swiss franc
The euro rose 0.2 percent against sterling
The euro has been hampered in recent weeks by discord between euro zone paymaster Germany and the ECB, backed by France.
Germany has been insisting that banks, pension funds and insurance firms that hold Greek debt swap their bonds for new ones with longer maturities.
But fearful this solution could create a "credit event" that would prompt rating agencies to label Greece in default, the ECB, European Commission and France all favor a softer option in which holders of Greek bonds would be asked to buy new Greek debt as their holdings mature.
The euro fell 0.4 percent on the week against the dollar.
AID SPECULATION
The euro was also boosted Friday by a bout of short covering triggered by speculation of a new Greek aid package that would be larger than previously thought. Traders cited market talk of a 150-billion-euro aid package for Greece although this could not be confirmed.
"When you get sharp moves on market talk it captures the highly nervous market environment," said Audrey Childe-Freeman, head of currency strategy at JP Morgan Private Bank in London.
"Yesterday was very much doom and gloom and we are bound to see some bounces back but until we get a firm conclusion about the Greek situation the market will remain suspicious."
EU Economic and Monetary Affairs Commissioner Olli Rehn said euro zone finance ministers will decide at a meeting on Sunday to disburse the next tranche of emergency loans to Greece in early July and decide on the new three-year bailout on July 11. [ID:nBRU011555]
The Greek cabinet, reshuffled on Friday, will face a vote of confidence by Tuesday night. The political moves could be another potential flashpoint in a country already beset by fierce anti-austerity strikes. [ID:nLDE75G0CY]
Markets will keep a close eye on Monday's meeting and the Greek vote for clues on how policymakers will proceed in dealing with the debt crisis.
The slight improvement in risk appetite boosted commodity currencies, pushing the Australian dollar
The dollar was down 0.4 percent at 80.27 yen in Friday's trading but clung to a 0.1 percent gain for the week against the Japanese currency