* Wall Street stocks mostly higher in choppy trade * Euro edges up from 4-month low vs U.S. dollar * European shares rebound as Cyprus tensions ease * Trading subdued before Easter holiday weekend By Ellen Freilich NEW YORK, March 28 (Reuters) - Major stock markets recovered and the euro edged off a four-month low on Thursday, as banks in Cyprus reopened to relative calm following the island's controversial bailout. On Wall Street, stocks moved in and out of positive territory in choppy, pre-holiday trade. There was little sign of the mass panic that some had feared as the country's banks reopened after a forced closure of almost two weeks, albeit with tight capital controls to prevent depositors from cleaning out their vaults. "Contagion from Cyprus to other banks in the periphery will be limited", Barclays (LSE: BARC.L - news) analysts Rajiv Setia and Laurent Fransolet said in a research note. But the decision to include senior debt holders and large depositors in the Cyprus bailout could have a "lasting effect" on the way investors perceive weaker euro area banks, they added. Despite its rise, the euro was seen to be vulnerable to the Cyprus crisis which could encourage anxious investors to sell euro zone assets and seek the safety of the U.S. dollar. PIMCO, the world's largest bond fund, said last week it had reduced allocations to the euro in response to the planned levy on bank deposits in Cyprus, citing the levy as "a significant departure" in euro zone policy from other reserve currencies. Cyprus's 10 billion euro rescue deal with its European partners at the weekend is the first euro zone bailout to impose losses on bank depositors, and has raised the prospect of savers withdrawing their money from banks. European Central Bank data showed some depositors began to take money out of their accounts in February when the possibility that depositors would take a haircut in a bailout deal, but the calm as bank employees returned to work helped settle early market jitters. The euro, which has dropped around 2.0 percent over the last couple of weeks, climbed back above $1.28 on Thursday, up from a four-month low against the U.S. dollar and one-month low against the yen Uncertainty has been amplified by an unexpected rise in German unemployment in March in data reported on Thursday, the lack of a government in Italy following inconclusive elections, and traditional end-of-quarter caution ahead of the Easter holiday. But Germany's unemployment rise was countered by stronger retail sales and a surprise rebound in Italian business confidence. European stock markets shrugged off their early nerves though as news of calm in Cyprus was reported. With benchmark stock indexes in London, Frankfurt and Paris all higher, the FTSEurofirst 300 climbed 0.6 percent. U.S. Treasuries and German government bonds, assets investors turn to for safety slipped. Benchmark 10-year Treasury notes last traded down 3/32 in price to yield 1.857 percent, up 1.2 basis points from Wednesday's close. Treasuries held those losses after the U.S. government raised its reading on U.S. economic growth in the fourth quarter of 2012 while reporting a bigger-than-expected rise in weekly jobless claims in the latest week. Gold slipped below $1,600 an ounce on Thursday, as banks reopened in Cyprus for the first time in two weeks without signs of panic withdrawals, sapping demand for low-risk assets. Gold hit a one-month high of $1,616.36 last week on concerns the $10 billion euro rescue deal for Cyprus, which will leave big depositors and private bondholders with huge losses, could become a template for future bank bailouts in the euro zone. Gold was down 0.5 percent to $1,597 an ounce by 1324 GMT. Spot prices were still set for a one percent gain in March, their first monthly rise in six months. U.S. gold futures dropped 0.6 percent to $1,596.20 an ounce. U.S. crude futures hovered above $96 a barrel early on Thursday as banks reopened in Cyprus. NYMEX crude for May delivery was down 5 cents at $96.53 a barrel by 1358 GMT. London Brent crude for May delivery was down 4 cents at $109.29, after finishing 33 cents higher at $109.69 a barrel the previous session.