* Euro up 0.1 pct at $1.2281 EUR=
* Risk rally fades, making euro vulnerable
* Euro shaky on banking woes, support seen near $1.2255
* Pound climbs after BoE member calls for rate hike
(Adds quote, details, updates prices)
By Tamawa Desai
LONDON, June 23 (Reuters) - The euro held steady on Wednesday but remained vulnerable as a recent risk rally appeared to have run its course and on concerns about the euro zone banking system.
A sharp fall in U.S. stocks .SPX the previous day and a subsequent drop in the Nikkei .N225 helped support the dollar and the yen, which are favoured when risk aversion spikes and doubts over the health of the global economy emerge.
European shares last traded down 0.3 percent .FTEU3.
"With advanced economies tightening their fiscal policies, the risks of economic slowdown are rising," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.
By 0910 GMT, the euro was up 0.1 percent from late U.S. trading on Tuesday at $1.2281 EUR=, having dipped to $1.2244.
Technical analysts were keeping an eye on support area near $1.2255. That level marks a 38.2 percent Fibonacci retracement of the euro's recent rally from its four-year low of $1.1876 hit in early June on trading platform EBS to a one-month high of $1.2490 marked on Monday.
Options traders drew attention to a large euro/dollar EUR= $1.24/1.25 bull call spread going through this morning for July 6 expiry.
Reaction was muted to euro zone purchasing managers' index, where the composite index dipped to 56.0 in June from 56.4 the previous month. [ID:nLAG006315]
Worries about the euro zone's banking sector returned after French bank Credit Agricole (CAGR.PA: Quote, Profile, Research, Stock Buzz)'s write-down on its ailing Greek unit Emporiki (CBGr.AT: Quote, Profile, Research, Stock Buzz) [ID:nLDE65L0NB]. That followed French bank BNP Paribas' rating cut by Fitch and S&P raising estimates for loan losses for Spain's banking sector on Monday.
The dollar index, which measures the dollar's value against a basket of currencies, was down 0.1 percent at 86.011 .DXY, but up from a one-month low of 85.091 marked on Monday.
Against the yen, the dollar fell 0.1 percent at 90.44 yen JPY=.
Sterling extended gains after minutes from the Bank of England's June meeting showed an unexpected split, with Monetary Policy Committee member Andrew Sentance voting for a 25 basis point rate increase. [ID: ]
The members voted unanimously to keep its quantitative easing target at 200 billion pounds.
"It's clearly very surprising, someone voting for a hike. Sentance however has never made any secret of being on the hawkish side on inflation," said Alan Clarke, economist at BNP Paribas. "I don't think it will lead to a hike."
Meanwhile, the Swiss franc extended gains, hovering near an all-time high against the euro of 1.3585 francs on trading platform EBS earlier in the Asian session.
Market euphoria after China's decision to loosen the yuan's 23-month-old peg to the U.S. dollar at the weekend faded as traders concluded China would keep adjustments limited. [ID:nLDE65M06J]
The Australian dollar fell 0.2 percent at $0.8700, backing away from a one-month high of $0.8860 hit earlier in the week.
Market players will also keep an eye out on central bank policy meetings. The Norges Bank's decision due out at 1200 GMT is expected to show interest rates unchanged but a lower rate trajectory going forward. [ID:nLDE65G0TK]
The U.S. Federal Reserve is expected to keep rates on hold and restate its intention to keep rates near zero for an extended period. [ID:nN17269337] (Editing by Toby Chopra)