* Euro inches up on higher stocks, European PMIs
* Risk appetite remains sluggish, dollar losses limited
* Markets await U.S. payrolls, ECB on Thursday
(Corrects 14th paragraph to show PMI was for Sweden, not Switzerland)
By Naomi Tajitsu
LONDON, July 1 (Reuters) - The euro inched up on Wednesday, supported by higher European shares and improving readings of manufacturing activity in the region, but gains were limited as investors awaited U.S. employment figures the following day.
Purchasing managers' indices from a host of European countries improved slightly in June from the previous month, suggesting that the region's economy is stabilising.
The data helped to keep the euro near the day's high against the dollar, but the pair remained off a three-week high touched the previous day as risk demand was limited.
Investors awaited a policy announcement by the European Central Bank on Thursday, as well as U.S. non-farm payrolls, which will be scrutinised to gauge whether the deterioration in the U.S. jobs market is starting to stabilise.
"The fact that we didn't get anything unpleasant in the PMIs like downward revisions, is helping the euro, said Daragh Maher, senior currency strategist at Calyon in London.
Ahead of Thursday's payrolls, this week has already seen a barrage of economic data, but a mixed bag of economic readings has failed to produce a strong argument either for or against an improvement in the global economy.
Maher said this has limited currency movements -- helping to keep the euro/dollar within its rough range of $1.38-$1.42 for all of June -- and added that range trade would continue barring a major payrolls surprise to the upside or downside.
By 0918 GMT, the euro was up 0.3 percent on the day at $1.4070, boosted by a 1.2 percent rise in European shares. The pair stayed below $1.4152, its highest since June 11, hit according to Reuters data on Tuesday.
The dollar index which tracks its performance against a basket of currencies, was slightly lower at 80.055.
Against the yen, the dollar rose half a percent to 96.85 yen, as the Japanese currency came under some selling pressure across the board.
Traders said the yen struggled broadly as Japanese institutional investors sold the currency at the start of the new quarter, along with a smaller-than-forecast improvement in the Bank of Japan's June tankan corporate survey.
US JOBS DUE
Data on Tuesday showed that euro zone manufacturing PMI rose to 42.6 in June from 40.7 in May, largely in line with expectations.
The figures suggested that the manufacturing sector continues to improve, although PMI remains below the 50 level that separates growth from contraction.
Analysts pointed out that the jewel in the PMI readings was the Swedish figure, which rose to 50.5, more than expectations for 45.0 and showing growth.
Still, the figures failed to stir significant risk appetite, as optimism about the global economy was tempered by weak U.S. consumer confidence and UK gross domestic product data.
On Tuesday, the U.S. Conference Board's consumer confidence index fell in June, suggesting the 18-month-long recession had yet to loosen its grip on the economy.
Also clouding the economic picture was data showing the UK economy shrank at its fastest pace in more than 50 years in the first quarter, suggesting the economy is continuing to struggle.
"It is becoming clear that risk appetite is starting to lack consistency and any catalyst could trigger a broad correction amid weak summer liquidity conditions," analysts at UBS said in a research note.
The U.S. employment report is due on Thursday as U.S. financial markets will be shut on Friday for the Independence Day holiday. Economists expect the economy shed 363,000 jobs in June after losing 345,000 in May.
The European Central Bank is expected to hold interest rates at a record low 1.0 percent on Thursday. Investors will be watching to see if it will offer more details of its plans to buy covered bonds, a quantitative easing measure intended to boost the economy.
(Reporting by Naomi Tajitsu; Editing by Victoria Main)