* Euro up 0.1 pct at $1.2281 <EUR=>
* Risk rally fades, making euro vulnerable
* Euro shaky on banking woes, support seen at $1.2255
* Pound climbs after BoE member calls for rate hike
(Adds details, updates prices)
By Tamawa Desai
LONDON, June 23 (Reuters) - The euro held steady on
Wednesday but remained vulnerable as a recent risk rally
appeared to have run its course and on concerns about the euro
zone banking system.
A sharp fall in U.S. stocks <.SPX> the previous day and a
subsequent drop in the Nikkei <> helped support the dollar
and the yen, which are favoured when risk aversion spikes and
doubts over the health of the global economy emerge.
European shares last traded down 0.3 percent <>.
"With advanced economies tightening their fiscal policies,
the risks of economic slowdown are rising," said Lee Hardman,
currency economist at Bank of Tokyo-Mitsubishi UFJ.
By 1110 GMT, the euro was up 0.1 percent from late U.S.
trading on Tuesday at $1.2281 <EUR=>, having dipped to $1.2244.
Technical analysts were looking for a daily close under
$1.2255. That level marks a 38.2 percent Fibonacci retracement
of the euro's recent rally from its four-year low of $1.1876 hit
in early June on trading platform EBS to a one-month high of
$1.2490 marked on Monday.
Reaction was muted to the euro zone purchasing managers'
survey, where the composite index dipped to 56.0 in June from
56.4 the previous month. []
Worries about the euro zone's banking sector returned after
French bank Credit Agricole <CAGR.PA>'s write-down on its ailing
Greek unit Emporiki <CBGr.AT> [].
That followed French bank BNP Paribas' rating cut by Fitch
and S&P raising estimates for loan losses for Spain's banking
sector on Monday.
The dollar index, which measures the dollar's value against
a basket of currencies, was down 0.2 percent at 85.950 <.DXY>,
but up from a one-month low of 85.091 marked on Monday.
Against the yen, the dollar fell 0.3 percent to 90.20 yen
<JPY=>, its lowest level since May 27.
STERLING UP
Sterling extended gains after minutes from the Bank of
England's June meeting showed an unexpected split, with Monetary
Policy Committee member Andrew Sentance voting for a 25 basis
point rate increase. []
The pound stalled just shy of a six-week high versus the
dollar <GBP=D4> of $1.4936 hit on Monday.
"It's clearly very surprising, someone voting for a hike.
Sentance however has never made any secret of being on the
hawkish side on inflation," said Alan Clarke, economist at BNP
Paribas. "I don't think it will lead to a hike."
Meanwhile, the Swiss franc held gains, hovering near an
earlier all-time high against the euro of 1.3585 francs on
trading platform EBS earlier. Traders said option barriers were
in place at 1.3575, 1.3550 and 1.3500 with large stops lurking
below.
The Australian dollar was steady at $0.8725 <AUD=D4>,
unfazed by media reports that Australian Prime Minister Kevin
Rudd faces a possible leadership challenge.[]
Market players will also keep an eye out on central bank
policy meetings. The Norges Bank's decision due out at 1200 GMT
is expected to show interest rates unchanged but a lower rate
trajectory going forward. []
The U.S. Federal Reserve is expected to keep rates on hold
and restate its intention to keep rates near zero for an
extended period. []
(Editing by Toby Chopra)
