* Euro gains vs dollar, yen as risk aversion ebbs further
* European stocks rise 1.7 percent; Fed meeting eyed
* Market awaits news of more Fed measures to boost economy
* Weak Swiss data dents franc; RBNZ seen cutting rates
(Adds quotes, updates prices)
By Jessica Mortimer
LONDON, Jan 28 (Reuters) - The euro gained against the dollar and the yen on Wednesday, helped by rising equities and easing risk aversion, with focus on the meeting of U.S. rate-setters later in the day.
Some better-than-expected economic data and corporate earnings results this week have encouraged investors to adjust some of their extreme risk averse positions, although they remain mindful that the global economy is still in deep trouble.
European shares .FTEU3 gained 1.7 percent, boosted by an ongoing recovery in recently battered banking stocks.
Currencies such as the euro and the pound that have suffered during bouts of heightened risk aversion gained, at the expense of the dollar and the yen which are typically perceived as safe havens.
“At the moment sentiment is likely to stay slightly negative for the dollar and the yen, partly because we are still in the honeymoon period for Obama,” Standard Bank G10 currency strategist Steve Barrow said.
“But I don’t see these declines as durable,” he added.
At 1044 GMT, the euro rose 0.6 percent against the dollar EUR= to $1.3250 and by 0.9 percent versus the yen EURJPY=R to 118.30 yen. The dollar also gained 0.3 percent against the yen JPY= to 89.20 yen.
The pound GBP= continued to recover versus the dollar after its slump to a 23-year low last week, hitting a one-week high of around $1.4325. The euro lost 0.4 percent against sterling EURGBP= to 92.77 pence.
The conclusion to the Fed’s two-day meeting later in the day will provide the main focus for currency markets, although policymakers have run out of interest rate ammunition with the benchmark rate already targeted at zero to 0.25 percent.
The market will be looking for any announcement of new policy measures, such as purchasing long-dated Treasuries.
Investors were taking heart from positive signs on U.S. President Barack Obama’s planned $825 billion stimulus plan to stem the recession in the U.S., with Democrats hopeful they have enough votes to push it through [ID:nLS502975].
Analysts said this was helping to ease risk aversion, alongside market talk that the U.S. will set up a “bad bank” to mop up toxic assets.
But they warned that the global economic outlook remained bleak and that the more positive sentiment seen this week could quickly turn.
“Global growth and demand are still the key and confidence is shot,” IDEAGlobal strategist Maurice Pomery said in a note to clients.
“The bigger themes remain and I still believe the dollar will do well and yen strength with continue”.
The Swiss franc fell to its lowest level so far this year against the euro after the key KOF economic barometer on Switzerland fell to its lowest since the series began in 1991 [nCHKOF]. The euro hit a high of around 1.5156 Swiss francs EURCHF=.
Meanwhile, data out of Australia overnight showed consumer prices fell by their biggest amount in a decade during the fourth quarter, justifying talk of another aggressive interest rate cut next week. [ID:nSYD216950].
The Australian dollar initially dipped after the data, but the higher-yielding currency later recovered, helped by the pick-up in equities. It was last trading up 0.6 percent versus the U.S. dollar at $0.6660 AUD=.
The New Zealand dollar fell, however, ahead of a Reserve Bank of New Zealand rate decision overnight, where analysts expect a large rate cut, possibly of 100 basis points, from the current level of 5.00 percent.
The currency dropped 0.7 percent against its U.S. counterpart to $0.5260 NZD=. (Reporting by Jessica Mortimer; Editing by Toby Chopra)