* Euro inches higher vs dollar as European stocks bounce * Volatile swings seen in Swiss franc, investors remain edgy * Talk of dollar/yen option barriers at Y76.25, Y76.00 (Updates quote, prices) By Nia Williams LONDON, Aug 12 (Reuters) - The euro edged higher on Friday as European stocks gained after a ban on short-selling of financial shares by some euro zone countries seemed to have soothed frayed nerves, although persistent worries about debt contagion checked gains. The safe-haven Swiss franc dropped in choppy trade, after posting record one-day falls against the euro and dollar on Thursday when rising rhetoric by the Swiss central bank weighed on the currency. Traders remained edgy on Friday on growing expectations the Swiss National Bank (SNB) will step up its fight to curb the franc's strength. Investors were also wary of pushing the yen much higher, given expectations that Japanese authorities would intervene to check the currency's gains. "It's been a very hectic week with extreme volatility so the market is now looking for calmer signals," said Audrey Childe-Freeman, EMEA head of currency strategy at JP Morgan Private Bank. "From a risk sentiment perspective it will be interesting to see if U.S. markets manage to post another positive session after the rally yesterday. But in the euro zone there is still a wide range of uncertain factors, and that leaves a risk premium in place." European shares gained as a short-selling ban on financial shares by France, Italy, Spain and Belgium, announced late on Thursday, appeared to calm market jitters about the region's banking sector, at least in the short term. In the past few sessions, the euro has been hurt by falling stocks and investors selling shares of large French banks on worries about their exposure to peripheral euro zone debt. The euro was last up 0.15 percent against the dollar at $1.4263 , off a session low of $1.4149, helped also by data which showed European banks were not rushing to the European Central Bank for overnight funds yet. It was up more than 1 percent against the Swiss franc at 1.0981 francs, having fallen to a session low of 1.0685 earlier. Euro/Swiss, which hit a record low of 1.0075 on Tuesday, has lost more than 13 percent since the start of the year, putting immense pressure on the SNB to act in the market. The dollar was up 1 percent against the franc at 0.7699 francs , extending the previous day's gains and pulling further away from a record low of 0.70676 struck on Tuesday. "The downward pressure on the franc is partly due to rebounding stock markets, talk of deeper negative rates on the Swiss deposits and speculation of a peg," said Simon Derrick, head of currency research at Bank of New York Mellon. PEG AND NEGATIVE SWISS RATES Talk of a peg and negative rates on Swiss deposits was sparked by a Swiss newspaper report, which quoted SNB Vice Chairman Thomas Jordan as saying the central bank could ease monetary policy further. He also declined to rule out the possibility of pegging the franc to the euro. Westpac, which had on Wednesday recommended investors to go long on the dollar/Swiss franc via options, said it was taking profits on that position given the dollar's steep rise against the Swiss franc in the past day. "We maintain a strong bias to buying dips in dollar/Swiss franc and think that the period round late August will arguably be one of intense policy risk for central bankers all over the world," Westpac said in a note. "Fed Chairman Bernanke will speak at Jackson Hole on August 26 where the focus will be on possible QE3 developments." The yen was pinned near a record high against the dollar despite last week's intervention by Japan to weaken it. The dollar was down 0.4 percent against the yen at 76.54 yen , not far from all-time low of 76.25 yen set in mid-March. Proximity to the record low has fuelled speculation about the potential for further yen selling intervention. There has been talk of option barriers at 76.25 yen and 76.00 yen. That suggests that dollar buying by options players could emerge near such levels and cushion the dollar's fall, but it also means the dollar's drop could gather steam if such barriers are breached. Traders have also cited strong demand for short-dated dollar call options with strike prices roughly around 78 yen to 79 yen, in case Tokyo does intervene. Japanese Finance Minister Yoshihiko Noda said on Friday he will consider various options if one-sided moves in the yen continue. (Editing by Catherine Evans)

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