* Euro rises broadly as extreme risk aversion eases
* Euro hits one-week high of $1.3086, up 1.0% vs yen
* EZ flash mfg, services PMI at 6-month highs
*Sterling up vs dollar after falling on UK budget on Wed
(Recasts, adds quotes, updates prices)
By Tamawa Desai
LONDON, April 23 (Reuters) - The euro rose broadly on Thursday as extreme risk aversion eased on some brighter signs for the economy and banking system, prompting gains in equities, although wariness over the financial system kept gains in check.
Sterling also recovered against the dollar after taking a beating the previous day as the UK budget showed a shocking deterioration of public finances.
Sentiment was helped as European stocks rose 0.6 percent, shaking off earlier losses and London's FTSE index also rose 1.0 percent. U.S. stock futures also pointed to a higher Wall Street open.
"There has been a broad stabilisation in financial risk premia in currency markets," Tullett Prebon G7 market economist Lena Komileva said.
"There is a general belief that global growth is stabilising that has been supported by the stronger euro zone PMI data," she said, but added there is "not a lot of confidence behind this".
At 1122 GMT, the euro rose 0.5 percent against the dollar to a one-week high of $1.3086 after hitting a one-month low of $1.2885 on trading platform EBS on Wednesday.
Traders noted, however, that a large euro/dollar options contract with strike price of $1.3000 was set to expire later in the day. That may be preventing the pair from moving too far away from that level, they said.
The single currency also jumped 1.0 percent against the yen to 128.73 yen. The euro also reversed earlier losses against sterling to briefly hit a one-week high of 90.04 pence.
GREEN SHOOTS
"The PMIs gave some encouraging signs that are adding to the green shoots story, not just in Europe but globally," said BNP Paribas currency strategist Ian Stannard.
"The euro has the potential to move higher, especially if we see equity markets continue to stabilise. This will also benefit cyclical and commodity currencies."
Data on Thursday showed Markit's Eurozone Flash Services purchasing managers' index for manufacturing jumped to a 6-month high of 36.7 in April from 33.9 in March, above the consensus for 34.5, though it was still below the 50.0 mark dividing growth from contraction.
Other data showed euro zone industrial new orders fell 0.6 percent in February, much smaller than forecasts for a 2.4 percent fall.
U.S.-listed shares of Barclays Plc rose in premarket trade on Thursday, rising 6.7 percent to $12.64 after the British bank said its first-quarter financial performance was well ahead of the same period last year.
That followed news that Credit Suisse posted a net profit of 2 billion Swiss franc ($1.71 billion) for the first quarter, twice as much as expected.
Meanwhile, the euro was flat against the Swiss franc, after rising to a session high of 1.5198 franc after Swiss National Bank Vice-Chairman Philipp Hildebrand repeated the central bank will act resolutely to stem the Swiss franc's rise against the euro as long as there are deflation risks.
But the rally lost steam as the SNB did not follow up the talk with action, which some market players were anticipating as they had set up long euro/Swiss franc positions.
The dollar up 0.3 percent at 98.30 yen.
Investors remain cautious about the results of the U.S. government's "stress" tests on U.S. banks, while concerns linger about the fate of troubled U.S. automakers.
The Wall Street Journal reported that U.S. banks will be briefed by regulators as early as Friday on how they performed in the tests before the results are made public later.
Some estimates of banks' likely losses that were used in the stress tests were tougher than expected, the newspaper said. (Additional reporting by Jessica Mortimer; Editing by Victoria Main)