FOREX-Dollar boosted by Citi earnings but fears remain

* Dollar rises as Citi reports smaller-than-expected loss

* Euro capped as Trichet notes risks to growth

* Broad dollar sentiment still clouded by financial woes

(Recasts, updating prices and comment, changes dateline, previous LONDON)

NEW YORK, July 18 (Reuters) - The dollar rose against a basket of six major currencies on Friday, boosted by news Citigroup Inc. (C.N: Quote, Profile, Research, Stock Buzz) posted a smaller-than-expected loss in the second quarter, further calming fears about the health of the U.S. financial sector.

The results from Citi, the largest U.S. bank, add to positive earnings news from other banks such as Wells Fargo & Co. WFC.N and JP Morgan Chase & Co. (JPM.N: Quote, Profile, Research, Stock Buzz) earlier this week.

As well as injecting fresh impetus into the dollar, Citi's results increased optimism in the stock market.

"Citi earnings have encouraged the market to take on more risk and given (the dollar) a lift," said Stephen Malyon, senior currency strategist at Scotia Capital in Toronto. They were "consistent with other bank earnings seen earlier this week which has turned sentiment around on the dollar a little bit."

The dollar also benefited from sharp falls in sterling after the Financial Times reported the UK Treasury is working on plans to change its fiscal rules.

This could effectively give it more leeway to increase borrowing as a way of mitigating the effects of an anticipated economic slowdown. See [ID:nL17632891].

Early in New York, the dollar index, which tracks its performance against a basket of six major currencies, was up 0.3 percent at 72.250 .DXY, though still close to the record low of 70.698 hit in March after the Federal Reserve coordinated JP Morgan Chase's takeover of Bear Stearns.

Sterling was down 0.3 percent at $1.9950 <GBP=>, even though the UK Treasury dismissed the FT report as "pure speculation."

The euro fell 0.3 percent to $1.5816 <EUR=>, and the dollar was up 0.6 percent against the yen at 106.85 yen <JPY=>.

The euro was capped by European Central Bank President Jean-Claude Trichet's comments published on Friday that euro zone growth is likely to be weak in the second and third quarter before staging a recovery.

Risks to growth were on the downside, Trichet said in a joint interview with four European newspapers. [ID:nL18138509].

For the week, the euro has lost 0.8 percent against the dollar, while the dollar rose 0.7 percent against the yen.  Continued...