FOREX-Euro down ahead of European stress test outcome
* Euro lower; market wary before EU bank stress tests
* S&P warns on U.S. ratings if no deal on debt ceiling
* Swiss franc seen good hedge vs euro, dollar (Recasts, updates prices, adds quote, U.S. data; changes, dateline, previous LONDON , byline)
By Gertrude Chavez-Dreyfuss
NEW YORK, July 15 (Reuters) - The euro slipped against the dollar on Friday, weighed down by concerns about the results of the European bank stress tests due later in the day and weaker-than expected U.S. data that fueled some risk aversion in the market.
The unexpected contraction in the New York state's manufacturing index in July spurred some safe-haven buying of U.S. dollars and pushed the euro lower, analysts said, including risk-sensitive currencies such as the Australian and New Zealand dollars.
But the focus remained squarely on the crucial euro zone bank stress tests due approximately at 2 p.m. EDT (1600 GMT). They are expected to show around 10 lenders have insufficient capital to withstand a prolonged recession. [ID:nL6E7IE23E].
"There's a general sense of nervousness prevailing because of the stress tests," said Boris Schlossberg, director of FX research at GFT in New York.
In addition, Schlossberg said the "U.S. data was weak and it created a bit of risk aversion. What you're seeing across the board is a a big global slowdown on top of the European sovereign debt crisis. This, he said, was a scenario not conducive for risk-taking.
In early New York trading, the euro EUR=EBS edged lower to $1.41251, down 0.1 percent, but above a four-month low of $1.38376 hit earlier this week.
Traders said demand from sovereign names had supported the single euro zone currency earlier, though they expected gains to be limited due to offers reported at between $1.41900 to $1.42250.
On the week, the euro was down 0.6 percent versus the dollar.
Many investors, while cautious, did not expect the stress test results to have a significant market impact. Although there have been question marks over the tests' credibility, no large bank is expected to fail and the total capital needed could be under 10 billion euros.
The ICE dollar index .DXY was up 0.1 percent at 75.338, somewhat benefiting from the fact that a higher core reading of U.S. consumer prices for June suggested another round of the Federal Reserve's quantitative easing was not imminent. For the data, see [ID:nN1E76E0B9].
But the impasse on the U.S. debt ceiling talks remained a headwind for the U.S. dollar. Standard & Poor's earlier said there was a one-in-two chance it could cut the United States' credit ratings if no deal was reached on raising the government's debt ceiling. [ID:nL3E7IF03A]
The euro outlook was also shaky on worries about whether Europe could find a solution to the debt crisis in Greece and prevent contagion to larger countries such as Italy, highlighted by the rising cost of insuring peripheral euro zone debt against default. [GVD/EUR]
With prospects for euro/dollar muddied by major concerns about debt in both the euro zone and the U.S., some analysts advocated buying the safe-haven Swiss franc as a hedge against downside risks to both the euro and the dollar.
The euro rose 0.15 percent to 1.15640 francs EURCHF=EBS while the dollar CHF=EBS rose 0.4 percent to 0.81860 franc. However, both the euro and the dollar hovered not far from recent record lows of 1.14942 francs and 0.80800 franc respectively.
Implied volatility in euro/Swiss one-month implied vols EURCHF1MO= rose higher than Aussie/dollar one-month implied vols AUD1MO= for the first time ever, which analysts said reflected a continued search for safer alternatives as the euro zone debt crisis rages.
(Additional reporting by Jessica Mortimer in London) (Editing by Theodore d'Afflisio)
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