FOREX-Euro gains on agreement to extend Greece's bailout package

* Euro gains as euro zone extend Greece's rescue package

* Yellen testimony in focus next week (New (KOSDAQ: 160550.KQ - news) throughout, updates prices and market activity, adds information about Greek extension deal, comments)

By Karen Brettell

NEW YORK, Feb 20 (Reuters) - The euro gained against the U.S. dollar on Friday after euro zone ministers agreed to extend Greece's financial rescue package by four months.

The agreement removed the immediate threat that Greece could run out of money next month and be forced out of the single currency area. The new leftist-led Athens government now can try to negotiate longer-term debt relief with official creditors.

"It certainly looks like we're moving away from disaster," said Sebastien Galy, senior foreign exchange analyst at Societe Generale in New York. "It should help a stress that has been building up in the market to be released."

The euro rallied to a session high of $1.1428 and last traded at $1.1402. Before the meeting of finance ministers began, the single currency had fallen to $1.1287.

European Union paymaster Germany, Greece's biggest creditor, had demanded "significant improvements" in reform commitments by Athens before it would accept an extension of euro zone funding.

Some investors have worried that a large renegotiation of Greece's bailout could affect other countries that need bailouts.

"That could have some serious implications with other countries that have had to go through austerity measures, it opens the euro zone to an endless number of possibilities that would definitely result in instability and volatility," said Sireen Harajli, a foreign exchange strategist at Mizuho Corporate Bank in New York.

Traders next week will watch Federal Reserve Chair Janet Yellen's testimony before the U.S. Senate Banking Committee on Tuesday for any hints about when the U.S. central bank may begin raising rates.

Minutes from the Fed's January meeting, which were released on Wednesday, were seen as more dovish than expected as some officials expressed concerns about raising interest rates too quickly.

Fed officials also debated the impact that stubbornly low inflation measures were having on the central bank's confidence in moving ahead with raising rates. (Editing by Nick Zieminski and David Gregorio)