FOREX-Euro advances as upbeat German data dims ECB rate cut view

* Euro rises as German industry orders jump

* Investors wary of pushing euro lower before ECB meets

* U.S. Fed's Williams urges caution on trimming stimulus

By Gertrude Chavez-Dreyfuss

NEW YORK, Nov 6 (Reuters) - The euro rose broadly on Wednesday after stronger-than-expected German industry orders affirmed expectations the European Central Bank won't cut interest rates this week despite a steep fall in inflation.

But the outlook for the euro zone's common currency has dimmed, with many market participants expecting the ECB to strike a dovish tone at Thursday's monetary policy meeting.

The euro has dropped sharply from levels above $1.38 touched before last week's data on inflation, which fell to its lowest in nearly four years. The euro zone's inflation numbers have fanned speculation the ECB may further ease monetary policy at some point, although Wednesday's robust German industry orders have at least ensured that the ECB would keep interest rates unchanged on Thursday.

Only one of 23 money market traders polled by Reuters expects a cut on Thursday.

"Our base case is that the ECB will strike a far more dovish tone on Thursday, laying the foundation for an interest rate cut and LTRO (long-term refinancing operation) at the December 5th meeting," said Camilla Sutton, chief currency strategist at ScotiaBank.

She added that the risk of an ECB rate cut is real whether it comes in November or December, adding that the ECB will work hard to soften the euro and its impact on inflation. ScotiaBank sees the euro at $1.31 by the end of the year.

The euro extended gains after data showed German factory orders jumped by 3.3 percent in September, well above the 0.5 percent economists had expected.

In midday trading, it was up 0.3 percent at $1.3513, well above Monday's low of $1.3442 and trendline chart support at $1.3454.

Ruben Segura-Cayuela, European economist at Bank of America (TLO: BAC.TI - news) Merrill Lynch in London, said the euro is not overvalued but it is close to the upper end of its equilibrium range. He added that the euro zone cannot afford a stronger euro.

"The strength of the euro this year has already started offsetting the periphery's competitiveness gains, which the region achieved during a painful adjustment in recent years," said Segura-Cayuela.

The euro has gained 2.5 percent so far this year, on track for its strongest yearly performance since 2007.

Meanwhile, another report on Wednesday showed that euro zone private sector growth slowed less in October than previously estimated.

FED'S WILLIAM'S COMMENTS PRESSURE DOLLAR

The euro was also helped by comments from San Francisco Federal Reserve Bank President John Williams, who said the Fed should wait for stronger evidence of growth momentum before trimming bond-buying. Williams' remarks weighed on the dollar.

But a report on Tuesday showing U.S. service-sector activity picked up in October suggested the economy may not have suffered badly from the partial government shutdown. This kept alive the prospect of the Fed scaling back stimulus in the coming months.

Carl Hammer, chief currency strategist at SEB (Paris: FR0000121709 - news) , said he expected euro/dollar movements to be limited to within one or two cents either side of $1.35.

"An ECB rate cut would be negative for the euro because it would play into the hands of short-term speculators as the market is quite long of euros, but it would not really alter the long-term picture." He said a rate cut would have limited effect because rates were already near zero.

The dollar index, which measures the greenback's value against a basket of currencies, slipped 0.3 percent to 80.464 , down from a seven-week high of 80.930 set on Monday.

Sterling earlier hit a one-week high against the dollar and a one-month peak against the euro after stronger-than-expected industrial output data.