* Euro recovers after early fall to four-year low
* Uncertainty surrounds German naked short-selling ban
* Fed upgrades U.S. economic forecast (Adds comment, byline, updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, May 19 (Reuters) - The euro rallied from a four-year low against the dollar on Wednesday, as traders bought the unit amid speculation European monetary officials may act to support the single euro zone currency.
Market talk on potential meetings or action by the European Central Bank pushed the euro up from its lowest level since April 2006.
That level -- $1.2143 -- was hit on electronic trading platform EBS before the New York session after Germany's ban on Tuesday of naked short-selling of some securities.
An ECB spokesman, however, declined to comment on market rumors of fresh central bank action.
"We've got this rally in the euro and I think it's the market's understanding and fear that the G7 is concerned about the speed of the euro's decline," said Dean Popplewell, chief currency strategist, at OANDA in Toronto.
"The market is worried or is anticipating some sort of verbal intervention or even a multilateral currency intervention to boost the euro," he added.
The last time a major coordinated effort was made to intervene was in September 2000 when the Federal Reserve, Bank of England, Bank of Japan and Bank of Canada joined forces with the ECB to support a beleaguered euro.
At that time, the euro hit a trough below US$0.85.
In early afternoon trading, the euro was up 1.6 percent against the dollar at $1.2378 <EUR=EBS> after strengthening as high as $1.2399, according to electronic trading platform EBS.
The euro hit session highs after the release of the Federal Reserve's minutes of its latest meeting, which showed the Fed upgraded its outlook on the U.S. economy, boosting risk appetite in the market. For the Fed minutes, click on [ID:nWEQ003931]
Given the euro zone's debt problems, the euro has become a proxy for risk appetite, rising when there is positive economic news.
The euro rose nearly 2 percent against the Swiss franc at 1.4285 francs <EURCHF=> after going as high as 1.4307. The euro was on track for its best one-day gain against the Swiss currency since March 2009 amid speculation the Swiss National Bank intervened to counteract the franc's strength in recent sessions.
The euro was last up more than 1 percent against the yen at 113.30 yen <EURJPY=>.
The single currency is still down more than 13 percent against the dollar so far this year, hammered by concerns Europe's debt problems and austerity measures to combat them could hamper the euro zone's economic recovery.
Germany on Tuesday banned naked short selling of euro zone government bonds, some stocks and naked selling of credit protection backed by sovereign debt. [ID:nSGE64I073]
The announcement of the German ban sparked a wave of uncertainty which initially lifted the U.S. dollar and yen.