* Upside surprise in German, French GDP buoys euro
* Euro zone economy shrinks just 0.1 percent in Q2
* Fed's more upbeat outlook helps spur risk appetite
(Updates prices, adds details, changes byline)
By Naomi Tajitsu
LONDON, Aug 13 (Reuters) - The euro hit a one-week high against the dollar on Thursday after the euro zone's two biggest economies posted surprise returns to growth in the second quarter, helping drag the dollar lower.
The dollar index hit its lowest in a week, also stung by growing demand for riskier assets including commodities and higher-yielding currencies after the Federal Reserve on Wednesday gave its clearest statement to date that it saw the U.S. recession nearing an end.
Reports on Thursday showed both the German and French economies expanded 0.3 percent on the quarter in April-June, wrong-footing expectations for contractions. Other data showed the entire euro bloc posted a modest 0.1 percent contraction.
The euro climbed after the data, but analysts pointed out that markets were brushing off some of the less rosier GDP readings. Despite only a slight quarterly contraction, the euro zone economy shrank 4.6 percent from a year ago.
"The data wasn't as bad as expected ... but minus 4.6 percent still isn't a good number," said Maurice Pomery, managing director of Strategic Alpha in London.
He added that the euro's climb after the euro zone figures had been minimal, which he said suggested that traders were wary of pushing the single currency much higher.
At 1110 GMT, the euro was up 0.5 percent on the day at $1.4270, having hit $1.4281 on electronic trading platform EBS, its highest since last Friday. Against the yen, the euro gained 0.6 percent to 137.29 yen.
Further steep gains in the euro, however, are unlikely for now, said Adam Cole, global head of FX strategy at RBC Capital Markets in London.
"What we really need to see for the euro to run any further is some evidence from leading indicators that growth is actually turning positive at the moment. So there is a limit to how far it can run," he said.
The dollar edged up 0.3 percent versus the yen to 96.32 but its index fell 0.4 percent to 78.490, its lowest since last Friday.
Higher-yielding currencies such as the Australian and New Zealand dollars gained around 1 percent each, extending gains made the previous day after rebounding from steep losses.
A 1.4 percent climb in European shares helped fuel demand for these currencies, while a pop in U.S. crude oil near $72 a barrel and a 10-1/2-month high in copper prices also spurred demand for risky assets.
MONETARY POLICY IN FOCUS
Sterling rose 0.8 percent to $1.6630, recovering from a two-week low hit on Wednesday, when the UK jobless rate hit 3-year high and the Bank of England's Inflation Report suggested that markets were expecting rates to rise too early.
The Norwegian crown added to gains a day after the country's central bank held rates at a record low but opened the door to a sooner-than-expected rise. The euro hit a three-month low of 8.5712 crowns, extending a 2 percent slide on Wednesday.
The Fed held its benchmark rate near zero on Wednesday and said it would likely stay there for an extended period to guide the way to recovery. It also said the economy was showing signs of levelling out, which boosted risk sentiment.
Still, there remained a degree of caution on the Fed's move to extend the time frame of asset purchases as it indicated the economy was still vulnerable, analysts said.
"The problem with Fed statement is that the market can read into it what it wants, leaving both sides content ... hence, for now it is still unclear which way the USD will jump," said Stuart Bennett, senior FX strategist at Calyon in London. (Additional reporting by Ian Chua, editing by Ron Askew)