* German court ruling boosts risk appetite
* ECB on Thursday could still push euro lower
* Swedish crown gains amid search for safety (Adds comment, updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, Sept 7 (Reuters) - The euro rallied on Wednesday as sovereign debt worries abated temporarily after a German court backed the country's role in euro zone bailouts, though gains may be limited ahead of a European Central Bank meeting.
Risk appetite improved as a result of the German court's decision, pushing the dollar lower as investors sought other currencies that offer higher returns such as the Australian dollar and Swedish crown.
In addition, a call by Chicago Federal Reserve President Charles Evans, a voting member of the central bank's Federal Open Market Committee, for further U.S. easing to stimulate jobs was also a negative for the greenback.
Investors though looked to Thursday's ECB meeting and were back to scrutinizing ECB President Jean-Claude Trichet's messages which can sometimes be unclear. Analysts expect the ECB to flag a pause in tightening due to slowing global growth, easing inflation, and nagging euro zone debt concerns. Some even suggested that the ECB could sound outright dovish.
"In the longer term, you've got to believe that the euro is very much under pressure. The euro tried to rally on the German court decision, but its attempt has so far been weak," said Dean Popplewell, chief FX strategist, at OANDA in Toronto.
"Tomorrow investors expect the ECB to tweak its statement to appease the doves," he added, and that has injected some element of caution in buying euros.
In late afternoon trading, the euro was up 0.7 percent on
the day at $1.40990
Although the court's decision was seen as positive for the euro, the court also said parliament must have a bigger say before aid is granted, which could potentially make a solution to the euro zone debt crisis more cumbersome. [ID:nL5E7K72PX].
Data showing German industrial output rose more than expected in July and a rise in equities supported the euro as did the Italian Senate's approval of the austerity program aimed at staving off a financial crisis. For details, see [ID:nLDE7860S2]
The euro held gains against the Swiss franc, which fell for
a second straight day after the Swiss National Bank on Tuesday
said it would set a floor of 1.20 francs to the euro by buying
foreign currencies in unlimited quantities. The euro was last
up 0.3 percent at 1.21000 francs
The dollar, meanwhile, was down 0.4 percent at 0.85820
franc on EBS
The ICE dollar index <.DXY> was down 0.7 percent at 75.448.
Kathy Lien, director of FX research at GFT in New York, said the dollar's weakness was partly due to Evans' call for further U.S. stimulus. "Evans is a FOMC voting member and so his opinions carry great weight within the bank," she said.
SWEDISH CROWN, AUSSIE RISE
As investors fled the safety of the franc following the SNB's move on Tuesday, it was the Swedish crown's turn to shine.
Investors had snapped up the Norwegian crown on Tuesday -- a currency with robust economic fundamentals -- as they frantically searched for an alternative safe haven.
The Swedish crown rose to a three-month high against the
euro
"The Swedish crown is very attractive for a euro-based investor because the ECB is starting to look like it may cut rates," said Sebastien Galy, currency strategist at Societe Generale in London.
"Only a few days ago the crown was trading below its short-term fair value based on rate differentials. Now people are rushing into it."
Commodity currencies also rose, with the Australian dollar
up 1.5 percent at US$1.0651
The dollar, meanwhile, was down 0.4 percent against the yen
at 77.284 yen
Traders said the yen was supported by the Bank of Japan's decision to keep policy unchanged. Some market players had expected Japan to take measures to stem the yen's strength after Tuesday's move by the SNB. (Additional reporting by Nick Olivari; Editing by Chizu Nomiyama)