* Dollar speculators squeezed out of crowded positions
* Euro rallies as EU yields spike, Greek creditors make offer
* ECB meets later in day, key U.S. data ahead
* Aussie advances after GDP, RBA
By Wayne Cole and Tomo Uetake
SYDNEY/TOKYO, June 3 (Reuters) - The U.S. dollar was broadly lower on Wednesday as hopes for progress in Greek debt talks and a huge spike in European yields combined to give the euro its biggest gain in three months.
The dollar index, which measures it against a basket of six major currencies, was down at 95.897 having shed 1.5 percent on Tuesday in its biggest one-day drop since July 2013.
The euro was enjoying the view at $1.1155, having climbed 2 percent overnight, while the dollar lapsed back to 124.04 yen and away from a 12-1/2-year peak of 125.070.
CitiFX head G10 strategist, Steven Englander, said the violence of the shift reflected just how much speculators had been long of dollars and short of euros.
"Today's EUR move started as a rates (yields) move and looks now to be a position unwind. We estimate that a third of the EURUSD move is driven by the change in rates, and 67 percent by positioning unwinds."
The initial catalyst was EU data showing a surprisingly large increase in headline and core inflation which suggested the European Central Bank's latest easing campaign was gaining traction.
German 10-year Bund yields surged 16 basis points to 0.68 percent, the biggest jump in about three years, while Spanish, Italian and Portuguese yields hit 2015 highs.
"Investors got nervous as volatility is back in the European bond markets again," said Mari Iwashita, chief market economist at SMBC Friend Securities.
"Many players, including hedge funds, are still struggling to recover from sudden and dramatic losses on euro zone debt suffered since the end of April. They fear that there may be another round of chaos," she said, adding the European Central Bank's policy meeting later in the day is a big focus now.
The central bank is widely expected to reaffirm its commitment to the trillion euro asset purchase programme.
The euro got another leg up when the ECB, the European Commission and the International Monetary Fund agreed on the terms of a cash-for-reform deal to be put to Greece in a bid to conclude four months of debt stalemate.
It was far from clear if the leftist government of Prime Minister Alexis Tsipras would accept the plan, but the market took it as an encouraging step forward.
Dealers said the speed and size of the euro rally argued for consolidation in the very term, while the technical background looked better after a break of the 20-day moving average at $1.1132. The next major chart target was $1.1210/20 and a breach there could trigger a move to the $1.1325/40 zone.