The single currency jumped to a session high of $1.3843 and was last trading up 0.5 percent at $1.3819. Traders said sovereign investors were seen buying, helping trigger stop loss orders around $1.3820 and $1.3830.
News of the guidelines document helped the euro regain ground after earlier falling to a session low of $1.3673 on doubts European leaders would take aggressive steps to ease the debt crisis at a summit on Oct. 23.
Investors focused on proposals including the suggestion the European Financial Stability Facility could buy bonds on the secondary market, although only if the euro zone country has sustainable debt.
Analysts said the euro's climb was a knee-jerk reaction to some clarity on how the EFSF might be structured, but the actual details of the document were less encouraging.
"The market is grateful for some small mercies at the moment ahead of the summit, but to honest I think the details of the draft look pretty poor," said Steve Barrow, head of G10 currency research at Standard Bank.
"The market is responding to any rumours or news stories that come around but is not prepared to run with them. There is lots of up and down volatility but not really any direction and it's probably going to stay that way for the rest of the week."
The euro has traded in a range roughly between $1.3650-$1.3900 in the build up to the EU summit. Near term support stands at the 100-week moving average around $1.3670 ahead of this week's low of $1.3653.
The single currency also found some support from French and Spanish government bond auctions that met with decent demand, soothing some concerns about contagion engulfing the euro zone's core economies.
SENTIMENT SEEN FRAGILE
Risky assets and the euro have bounced in the past couple of weeks after the leaders of Germany and France pledged to unveil a comprehensive package by the end of the month to resolve the euro zone's debt crisis, including an agreement on how to recapitalise banks.
But investors remained nervous about signs European policymakers were struggling to reach consensus on measures to contain the debt crisis in the lead up to the EU summit and a G20 summit in early November.
French President Nicolas Sarkozy said on Wednesday that plans to tackle the euro zone debt crisis have stalled with Paris and Berlin at odds over how to increase the firepower of the region's bailout fund.
Sentiment was further shaken when a meeting between Sarkozy and German Chancellor Angela Merkel, aimed at breaking the deadlock, ended with no comment to waiting reporters from either leader.
Analysts said sentiment was still extremely fragile and the single currency would be vulnerable to headline trading.
"We are in a range ahead of the meeting but nervous within it. I think the path of least resistance for the euro from here is downwards, "said Kit Juckes, currency strategist at Societe Generale.
The euro reversed losses versus the safe haven yen following the release of the EFSF document guidelines, last trading up 0.5 percent on the day at 106.18 yen.
The yen was flat against the dollar at 76.80 yen and had showed subdued reaction to news that Japan's government and the Bank of Japan will launch a task force to help deal with the yen's recent strength.
Commodity currencies also rallied on the improvement in investor appetite to take on risk. The Australian dollar reversed losses to rise 0.3 percent to US$1.0258, while the New Zealand dollar was up 0.6 percent at US$0.7965.
Copyright Reuters, 2011