FOREX-Euro in range vs dollar before EU bank stress tests

 * Euro steadies; market wary before EU bank stress tests

 * S&P warns on U.S. ratings if no deal to raise debt ceiling

 * Swiss franc seen good hedge given problems facing EUR and
USD

 * Aussie falls sharply as Westpac predicts RBA rate cuts

 (Adds quote, updates prices)	

 By Jessica Mortimer	

 LONDON, July 15 (Reuters) - The euro steadied against the
dollar on Friday, as fears the results of European bank stress
tests due later in the day could further sour sentiment towards
the currency were tempered by concerns about U.S. debt after a
rating agency warning.	

  With worries about the euro zone and the United States
roughly offsetting each other, the euro was left stuck in
a range above a four-month low of $1.3838 hit earlier this week
and below Thursday's high of around $1.4282.	

  The euro was last up 0.1 percent at $1.4156. Traders said
demand from sovereign names had supported the single currency,
though they expected gains to be limited due to offers reported
at between $1.4190 to $1.4225. 	

  "Range-trading (in euro/dollar) is likely because
fundamentals everywhere are so bad," said Jane Foley, currency
strategist at Rabobank.	

   Many investors, while cautious, did not expect the stress
test results at 1600 GMT to have a significant market impact.
They are expected to show around 10 lenders have insufficient
capital to withstand a prolonged recession. 	

   While 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. 	

   "It could be that the stress tests are a bit of a
non-event ... The market is bracing itself for something which
may not be brilliant but will show that banks are holding their
heads above water," Rabobank's Foley said.	

 Weighing on dollar sentiment, 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. 	

 But euro sentiment 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.   	

 "We continue to favour euro/dollar lower, fading any
rallies," said Paul Robson, currency strategist at RBS. He
added, however, that many investors had been wrong-footed in
recent days in predicting that the euro had already peaked,
leaving them inclined to sit tight for now.	

 Italy's lower house of parliament was expected to give final
approval to austerity measures aimed at cutting its deficit in a
vote on Friday.    	

 SWISS FRANC SEEN A BETTER BET	

 With the outlook 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.	

 "Given the sovereign debt problems in the Eurozone, we would
expect the Swiss franc to act as the major outlet to USD
downside should a ratings adjustment occur. USD/CHF and to a
lesser extent, EUR/CHF should decline," Commonwealth Bank of
Australia analyst Richard Grace said in a note.	

 The euro rose 0.15 percent to 1.1557 francs while
the dollar was steady at 0.8160 francs. However, both the
euro and the dollar hovered not far from recent record lows of
1.1494 francs and 0.8080 francs respectively.	

 Elsewhere, the Australian dollar fell sharply,
trading down 0.6 percent at $1.0650, after a Westpac note said
the next rate move by the Reserve Bank of Australia would be a
cut and forecast 100 basis points of easing through 2012.	

 Implied volatility in euro/Swiss one-month implied vols
 rose higher than Aussie/dollar one-month implied
vols for the first time ever, which analysts said
reflected a continued search for safer alternatives as the euro
zone debt crisis rages.	

 "The risk in the European story is outpricing everything
else," says Societe Generale analyst Olivier Korber, though he
added the prospect of Australian rate cuts could drag on the
currency and push Aussie vols higher again.	

 The dollar traded at 79.06 yen above a session low of
78.89 hit shortly after S&P's warning.	

 U.S. inflation data at 1230 GMT, followed later by U.S. 
industrial output and University of Michigan sentiment figures
may provide further direction for the U.S. currency. 	

 Federal Reserve Chairman Ben Bernanke said on Thursday that
inflation was higher than in 2010 when quantitative easing was
reintroduced, disappointing dollar bears. 	
	
 (Additional reporting by Nia Williams; Editing by Catherine
Evans and Nigel Stephenson)