LONDON (Reuters) - The euro rose on Monday after Italy announced austerity measures and on hopes that European Union leaders will come up with a credible plan to tackle the euro zone debt crisis at a summit later this week. French President Nicolas Sarkozy and German Chancellor Angela Merkel, under pressure to align their positions on centralising control of euro zone budgets, meet in Paris on Monday to outline proposals to put to the Dec. 9 summit. Analysts and traders said the euro may make gains as investors take profits on hefty short euro positions, but is still vulnerable to renewed bouts of selling if there are suggestions EU leaders may be struggling to reach agreement. The market wants to see some kind of concrete agreement before investors are prepared to liquidate short positions, said Niels Christensen, currency strategist at Nordea in Copenhagen. I see the euro trading sideways for now. We may need to see negative news that there wont be any fresh agreement for it to test last weeks lows. Showing just how pessimistic speculators have become on the euro, data from a U.S. financial watchdog on Friday showed speculators on the Chicago futures exchange had their largest net short position in 18 months last week. The euro was up 0.2 percent versus the dollar at $1.3429, holding above last weeks low around $1.3259 and the Nov. 25 low of $1.3213. The single currency ended last week up around 0.8 percent, buoyed after joint central bank action to provide dollar liquidity. Market players took encouragement as Italian Prime Minister Mario Monti unveiled a 30 billion euro package of austerity measures on Sunday in a bid to shore up the countrys strained finances. Given large short positions in the euro, there will likely be some short covering if theres any progress in debate on the safety net for the debt crisis, said Makoto Noji, senior strategist at SMBC Nikko Securities. Markets are hopeful the EU will have taken a step towards fiscal union by Friday, agreeing on a treaty change to anchor coercive budget discipline for the 17-nation currency area. But that outcome is far from certain given the difficulties in securing agreement from so many countries. There will also be pressure on the European Central Bank to cut rates at its policy meeting on Thursday and offer fresh liquidity measures for banks, if not more sovereign bond buying. Im sure this week will be volatile. There will be moments of disappointment and moments of optimism. In the end the euro is dependent on what European leaders do, said Katsunori Kitakura, chief dealer at Chuo Mitsui Trust Bank. Risk sensitive commodity currencies drew some comfort from Fridays data showing the U.S. unemployment rate fell to a 2-1/2 year low in November, though the improvement was partly due to people leaving the workforce. The jobs data extended a string of better-than-expected figures suggesting the worlds biggest economy is recovering. The Australian dollar was up 0.25 percent at $1.0238, with a Reserve Bank of Australia (RBA) policy meeting awaited on Tuesday, where analysts see a good chance it will cut rates for the second month in a row. The dollar index was down 0.2 percent at 78.455, while the dollar edged down 0.1 percent versus the yen to 77.92 yen.