* ECB cuts rates, announces asset purchases
* Euro gains as ECB seen as less aggressive than Fed
* Focus turns to upcoming U.S. bank stress tests (Updates prices, adds comments)
By Wanfeng Zhou
NEW YORK, May 7 (Reuters) - The euro rose to a one-month high against the dollar on Thursday after the European Central Bank refrained from taking more aggressive liquidity-boosting measures that could reduce the currency's value.
The ECB said it plans to spend about 60 billion euros ($80 billion) buying covered bank bonds in a bid to stem the euro zone's economic decline. The ECB also cut its interest rates to 1 percent, a record low. For more, see [ID:nL7375413].
Analysts said traders were relieved that the ECB only announced a limited scale of bond purchase. Recent more aggressive measures taken by other central banks, including the U.S. Federal Reserve, to flood the financial system with money have led to near-term pressure on their currencies.
"I think the ECB announcement has allowed the euro to gain a bit of ground," said Daniel Katzive, global director of foreign exchange at Credit Suisse in New York. "The ECB has adopted a pretty limited form of credit easing -- arguably quantitative easing, depending on your definition -- but certainly not the wholesale quantitative easing that we've seen in the U.S. and UK."
"Their monetary policy is tighter and the currency is stronger as a result," he added.
In late New York trading, the euro rose 0.5 percent to $1.3377 <EUR=>, off a $1.3470 session peak, its highest level since April 6 and its approximate 200-day moving average, according to Reuters data.
Losses in the dollar were limited, analysts said, as U.S. stocks fell following a tepid response to a government bond auction, boosting some safe-haven demand for the greenback.
The euro was up 1.1 percent at 132.38 yen <EURJPY=> while the dollar rose 0.6 percent to 98.98 yen <JPY=>.
Growing optimism that special policies by central banks have helped steer the world economy through the worst of the recession also helped boost investor risk appetite and lend support to the euro, some analysts said.
"The ECB looks much better today than they have for several years," said Benedikt Germanier, senior currency strategist at UBS in Stamford, Connecticut. "This shows the market they are acting, and it will be helpful. It's positive news."
Sterling fell after the Bank of England kept interest rates steady but increased the size of its asset purchase program.
Sterling last traded down 0.8 percent at $1.5002 <GBP=>, while the euro rose 1.2 percent to 89.11 pence <EURGBP=>.
STRESS TEST RESULTS
Currency investors also awaited the official results of 19 U.S. banks' stress tests at 5 p.m. EDT (2100 GMT). U.S. Treasury Secretary Timothy Geithner said Wednesday none of the 19 banks being examined are at risk of insolvency, although reports suggest many, including some of the biggest, need more capital. [ID:nN06300175] [ID:nL6943131]
Analysts said they did not expect massive currency reaction because leaks earlier this week mean few expect surprises.
"Trading ranges have been compressed considering we're waiting for the results of the stress tests," said Jessica Hoversen, a fixed-income and currency analyst at MF Global in Chicago.
"Of the big banks -- who needs capital and who doesn't -- we know that already, but I think there's a big question on what else is there (in the release)," she said.
In other currency trading, the Australian dollar hit seven-month peaks against the yen <AUDJPY=D4> and dollar <AUD=> after data showed surprise gains in Australian employment, casting doubt on the need for further rate cuts. [ID:nSYD389866]
Against the U.S. dollar, the Australian dollar rose 0.9 percent to $0.7532, while the New Zealand dollar jumped 1.3 percent to $0.5906 <NZD=>. (Additional reporting by Steven C. Johnson; Editing by Diane Craft)