* SNB omits pledge to fight excessive franc rise decisively
* SNB keeps rate target at 0.25 percent, as expected
* Ups 2010 growth fcst to "around 2 percent"
* Says deflation risks gone, eyes 3 pct inflation by 2013
(Adds comments from media conference, rate futures)
By Catherine Bosley and Jonathan Lynn
GENEVA, June 17 (Reuters) - The Swiss National Bank took a step toward tightening its extraordinarily loose monetary policy on Thursday, judging the Alpine economy's recovery is robust enough to back off a pledge to fight a rise of the Swiss franc.
The central bank held interest rates at ultra-low levels as expected but dropped its promise to act decisively against an excessive rise in the franc, sending its currency up over one percent against the euro.
SNB officials emphasised they would use all measures at their disposal if the franc's rise risked leading to deflation but they said that for now such risks had largely disappeared.
The bank also raised its forecast for economic growth and said inflation would breach the central banks' price stability threshold of 2 percent in 2012, showing confidence the economy would ride out any fallout from the euro zone's debt troubles.
"The key takeaway from the SNB is that it has dropped its 'excessive appreciation' remark concerning the franc," said ING currency strategist Tom Levinson. "That its statement also refers to 'the weakening of the euro' is further evidence that euro/Swiss franc is probably a one way bet lower."
Switzerland has recovered from recession less bruised than many other countries in Europe over the past year, and the detail of the bank's forecasts showed inflation should top 3 percent by the start of 2013.
"(The inflation forecast) also shows that the current expansionary monetary policy cannot be maintained over the entire forecast horizon without compromising medium and long-term price stability," SNB chairman Philipp Hildebrand told a media conference in Geneva after the rate decision.
"Although the weakening of the euro with respect to the Swiss franc is dampening export activity, this activity is being supported by growth in foreign demand," Hildebrand said.
"In view of these pleasing developments, the deflationary risk in Switzerland has largely disappeared."
When asked if the central bank had stopped interventions, Hildebrand repeated that deflation risks had largely disappeared and added: "What is clear is that the Swiss National Bank will not allow deflation risks to reappear in Switzerland and we will take every measure necessary to ensure price stability."
The SNB raised its forecast for growth in 2010 to "around 2.0 percent" from about 1.5 percent previously. It saw inflation this year rising to 0.9 percent from an earlier 0.7 percent and in 2011 to 1.0 percent from 0.9 percent.
HIKE EXPECTATIONS
All 36 economists polled by Reuters had expected the SNB to keep rates ultra-low, where they have been since March 2009, and a large majority had also seen further currency interventions given risks that the euro zone's problems would hamper Switzerland's recovery
Analysts were cautious as to what the change in rhetoric on the franc meant for the timing of any rise in borrowing rates as the SNB also highlighted the risks stemming from the debt crisis in the euro zone.
Most were already betting on a rise in interest rates in the first quarter of 2011, although until Thursday's statement interest rate futures had implied a slightly later move Futures now price in an increase by March 2011.
"The SNB does not say whether it wants to obtain a normalisation by means of a rate hike or through an appreciation of the franc," said Unicredit analyst Alexander Koch.
"The SNB has left open when it will raise rates. It will allow a controlled appreciation of the Swiss franc. That would mean a sort of monetary tightening that has not been desired in the past," he said.
The debt crisis in the euro zone -- Switzerland's largest trading partner -- has sent the franc to record highs against the euro, tightening monetary conditions and creating a headache for the country's key export industry.
But separately on Thursday, data showed Swiss industrial orders rose 13.1 percent in the first quarter.
The tens of billions of francs pumped into markets via interventions have flooded the market with cash, which has sent the 3-month franc LIBOR to a record low.
Board member Jean-Pierre Danthine said that the SNB would now use its own debt -- so called SNB bills -- and reverse repo to drain the excess liquidity.
"The SNB has been stepping up the issuance of SNB bills since March 2010," Danthine said. The central bank has issued bills ranging from one week to three months and announced a 6-month bill on Thursday.
The SNB said that its target band for the 3-month Swiss franc LIBOR will remain at 0.00-0.75 percent. It will continue to aim to keep the LIBOR at 0.25 percent.
(Additional reporting by Katie Reid, Silke Koltrowitz and Jason Rhodes, writing by Sven Egenter and Patrick Graham)