By Marc Jones LONDON (Reuters) - Safe-haven assets were back in demand on Tuesday as investors played a waiting game ahead of a German ruling on the euro zone's new bailout fund, an election in the Netherlands and potential new stimulus from the U.S. Federal Reserve. European shares .FTEU3, which jumped to 13-month highs last week after the European Central Bank laid out new plans to address the region's debt crisis, were in negative territory for the second day running at 0940 GMT, 0.44 percent lower at 1,098.66 points. London's FTSE 100 .FTSE, Paris's CAC-40 .FCHI and Frankfurt's DAX .GDAXI were all lower .L .EU .N, following on from Asia, where investors, increasingly wary about China's wobbling economy, took profits from the recent stimulus-led rally. Europe is having another testing week as it seeks to pull itself out of its debt woes. Despite a late legal challenge from a eurosceptic lawmaker, Germany's constitutional court will rule on the powers of the euro zone's new ESM bailout fund on Wednesday, approval vital to release funds to recapitalize struggling Spanish banks. Dutch voters also go to the polls that day in the latest test of core Europe's resolve to keep the bloc intact, while European authorities will lay out their blueprint for a new 'banking union' to synchronize banking supervision and bailouts. "There is a broad consensus that the (equities) rally has really discounted all the good news that could come in the next couple of weeks and the risks are really skewed to the downside," said Peter Garnry, equities strategist at Saxo Bank. The German court statement that it would not delay its ESM ruling sparked life into a subdued euro, sending it back above $1.2800 towards its $1.2834 200-day moving average before paring the gains slightly. The dollar weakened elsewhere, too, hitting a three-month low against the Swiss franc, a six-week low against the yen and was 0.06 percent down against a wider basket of currencies .DXY. PERIPHERY SELL OFF The sell-off of riskier assets left German government bonds, typically favored by risk-shy investors, back in demand. Bund futures were up 24 basis points at 140.94 as uncertainty remained around the outcome of the ESM ruling and as worries resurfaced on Greece's fiscal repair plans. In contrast Italian, Spanish and Portuguese borrowing costs were all on the rise. Oil prices remained firm, with Brent crude futures at $114.45 a barrel. Safe-haven favorite gold, which has rallied nearly 7 percent over the last month, added 0.2 percent to $1,727.91 an ounce. Reflecting growing investor jitters, the CBOE Volatility index posted its biggest daily increase in seven weeks on Monday. Speaking in China, International Monetary Fund deputy managing director Zhu Min warned that despite the recent positive step by the ECB the euro zone debt crisis still had a long way to run. "Overall I would say the crisis is not over. We are still in the middle of it and there is some way to go," Zhu told a World Economic Forum meeting in the port city of Tianjin. STIMULUS HOPES Monetary stimulus continues to prop up large parts of the global economy. Interest rates cuts are expected in the coming months from Europe to key parts of Asia and Latin America RPOLL. One of the factors currently weighing on the greenback is Thursday's conclusion of the Federal Reserve's September policy meeting, with economists increasingly eyeing another dose of stimulus following weak jobs data last week. The dollar dropped during the two previous rounds of quantitative easing from the Fed with the U.S. dollar index falling around 17 percent between March and December 2009, and by around 13 percent between August 2010 and May 2011. Lee Hardman, currency analyst at Bank of Tokyo Mitsubishi, said the Fed's actions were likely to have less of an influence this time, especially as other central banks were also acting to support their economies. "In these circumstances, a more extended U.S. dollar sell-off on the back of QE3 will likely require more aggressive quantitative easing from the Fed than prior bouts ... which appears unlikely," he said. So far the U.S. dollar index has already fallen by close to 5 percent, he added, predicting that the total drop would be smaller than in the two previous stints of easing.

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