* Euro lifted by rise in equities; EU approves Greek plan
* Analysts say recent sell-off overdone
* Norwegian rate decision due
By Neal Armstrong
LONDON, Feb 3 (Reuters) - The euro held gains against the dollar on Wednesday after the European Commission backed a Greek deficit-cutting plan, easing investor worries over euro zone fiscal problems and boosting appetite for risk.
A rise in European shares also improved sentiment towards riskier assets, pushing the safe haven dollar broadly lower.
The European approved Greece's plan to reduce its budget deficit to below 3 percent of GDP by 2012, helping to narrow the spread between Greek and German government bond yields <GR10YT=RR><EZ10YT=RR>
At 1104 GMT, the euro <EUR=> traded up 0.3 percent at $1.3997, aided by the slight tightening in Greek bond spreads over German benchmarks.
Analysts said the EU approval had come as no surprise.
"The greater issue now is whether the Greek government takes this on board and implements it without too much resistance domestically," said ING currency strategist Chris Turner.
Greece's fiscal problems have fuelled selling in the euro this year, with concerns that other highly-indebted countries in the bloc may also face problems.
"We expect the problems in the euro zone will continue, other countries as well as Greece will have to make tough decisions and growth will be limited." said Johan Javeus, currency strategist at SEB.
A positive morning for European equity markets [.EU], after a strong finish in Shanghai stocks <.SSEC> on receding fears over Chinese credit tightening, also helped riskier assets.
"We are seeing a return of risk appetite as it feels like some of the recent moves have been overdone. The market is focusing on constructive data from the U.S. and the euro zone and looking to pick up currencies such as the euro and the Australian dollar as a result," said Ray Farris, currency strategist at Credit Suisse. Earlier, reports that two Chinese banks had called back some loans reminded the market of jitters over tightening measures in China and prompted some risk reduction [ID:nN02242571].
The dollar index <.DXY> <=USD> was down 0.2 percent at 78.888 but not far from a six-month high of 79.534 struck earlier this week. Traders said an Asian sovereign account was a large seller of the greenback in European trade.
The dollar has rallied in the past two weeks as investors cut positions in currencies linked to growth in China, such as the Aussie, on worries over the impact of credit tightening measures.
The Australian dollar <AUD=D4> was up 0.5 percent at $0.8900
Anecdotal evidence of the U.S. labour market will be published later on Wednesday when the Challenger jobs cuts and the ADP private-sector employment report for January will be released ahead of Friday's monthly payrolls report. <ECONUS>
Investors were also cautious ahead of a European Central Bank meeting on Thursday. As there is little expectation for a change in the ECB's monetary policy, the market's focus will be on what ECB President Jean-Claude Trichet says about Greece.
The euro was up 0.4 percent versus the yen <EURJPY=R> at 126.61 yen, while the dollar was up 0.1 percent versus the yen <JPY=> at 90.47.
Investors also awaited a Norwegian central bank interest rate decision at 1300 GMT.
"We do not expect a rate change today and think the Norges Bank will be on hold until March. In terms of the currency, the Norwegian krona has been strong versus the euro, but less so on a trade weighted basis", said SEB's Javeus.
The euro was steady against the Norwegian crown at 8.1461 crowns <EURNOK=R>
(Reporting by Neal Armstrong, editing by Nigel Stephenson)