FOREX-Euro dips vs dollar on ECB uncertainty, stress tests

* ECB, stress test, German bank ratings hit euro

* US private-sector jobs data boosts sentiment

* Source says Bank of America $34 bln capital shortfall (Recasts, updates prices, adds comment, detail)

By Steven C. Johnson

NEW YORK, May 6 (Reuters) - The dollar edged up against the euro and sterling on Wednesday as worries about U.S. banks and uncertainty about a European Central Bank meeting dulled risk appetite and boosted safe-haven flows into the greenback.

That erased earlier euro gains booked after ADP Employer Services data showed the United States cut just 491,000 private jobs in April, not the 650,000 economists had expected. Recent economic reports from around the globe have stoked hopes that the world economy may be through the worst of the recession.

The ECB is expected to cut interest rates to a record low 1 percent on Thursday and traders said it may announce additional measures such as buying securities.

News that Standard & Poor's rating agency had cut the ratings on five German banks also weighed on the euro, traders said [ID:nWNA3448], as did worries about U.S. bank stress tests.

A source said results on Thursday will show Bank of America (BAC.N) has a capital shortfall of $34 billion [ID:nN05520304].

Considering the risks ahead, which also include a more comprehensive U.S. employment report on Friday, "I would still favor selling rallies in the euro," said Jacob Oubina, currency strategist at Forex.com in Bedminister, New Jersey.

The euro was last down 0.3 percent at $1.3283 EUR= after having climbed as high as $1.3374 after the U.S. jobs data. Sterling fell 0.2 percent to $1.5046 GBP= while the dollar was off 0.1 percent at 98.75 yen JPY=.

Losses for the euro and sterling were limited, however, because the market in general remains more favorably disposed toward risk, Oubina said.

The U.S. jobs data, coupled with recent encouraging signs from the housing market and improved manufacturing data from Europe, China and India, have all added to hopes that the worst may be over.

Dan Cook, senior market analyst at IG Markets in Chicago, said the jobs data was especially hopeful. "With everything dependent on the labor market, this was a fantastic indication that maybe we are seeing a turnaround."

While it may be too early to call a bottom for financial markets and the world economy, "it's definitely good to see an improvement in these numbers," said UBS currency strategist Brian Kim.

The Bank of England also meets on Thursday and is seen holding its benchmark interest rate at 0.5 percent, a record low. But the main focus is on the ECB and whether it announces any additional unconventional policy measures such as buying securities to stimulate growth.

(Additional reporting by Gertrude Chavez-Dreyfuss and Nick Olivari in New York) (Editing by Theodore d'Afflisio)