FOREX-Euro rises on bank stress tests report, short-covering

(Updates with late New York prices)

* Euro short-covering supports currency

* Euro zone bank stress test report due Sunday

* Federal Reseve, Bank of Japan hold meetings in coming week

* Sterling rises after third-quarter UK GDP data

By Daniel Bases

NEW YORK, Oct 24 (Reuters) - The euro rose on Friday ahead of an official report on the health of the euro zone's main banks as investors continued a trend of covering their short-positions leading to buying of the currency against the U.S. dollar.

Despite Friday's weakness, the dollar is on track to close the week with a gain. Concerns about the first diagnosed case of Ebola in New York City, which stifled the dollar's rally late Thursday, have waned, strategists said.

The U.S. Federal Reserve will meet next Tuesday and Wednesday, and the consensus view is that it will wrap up asset purchases under its third round of quantitative easing.

A group of 25 banks have failed European stress tests, while up to 10 of those continue to have a capital shortfall, sources familiar with the matter told Reuters on Friday.

Bloomberg News first reported the results of the tests, which are due on Sunday. Currency strategists said this just added more fuel to the short-covering that has supported the euro's position.

"It is all speculation at this point and the ECB tried to remind us of that. It just highlights that this is a risk that is not as negative perhaps as was priced in," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto.

The euro zone's 130 biggest banks received the European Central Bank's final verdict on their finances on Thursday after a review aimed at drawing a line under persistent doubts about the health of the region's banking sector. They will not be made public until 1100 GMT on Sunday.

In late New York trading, the euro was up 0.17 percent at $1.2666, up from Thursday's two week low. It traded flat against the Japanese yen at 136.89. The dollar was off 0.18 percent to 108.05 yen.

The dollar index, which measures the greenback against its major trading partners' currencies, was down 0.16 percent, but on track to end the week up 0.70 percent.

"The dollar rally has paused a bit here and I think one of the core reasons is a bit of added uncertainty as to how the Fed will react to the stronger dollar, and to the renewed worries about global growth concerns," said Brian Daingerfield, currency strategist at the Royal Bank of Scotland (LSE: RBS.L - news) in Stamford, Connecticut.

The Fed's statement will be parsed for clues on how quickly the central bank might start raising interest rates, now not expected until late 2015.

"For the dollar to appreciate, you need the stock market to hold up in the face of a clean exit from QE3 by the Fed," said David Woo, head of global rates and currency research at Bank of America Merrill Lynch in New York.

Elsewhere, sterling rose to $1.6087, up 0.37 percent. Third quarter gross domestic product data showed Britain's economy grew by 0.7 percent, down from 0.9 percent the quarter before, but in line with economists' expectations. (Additional reporting by Anirban Nag in London and Lisa Twaronite in Tokyo; Editing by Bernadette Baum and Andre Grenon)