FOREX-Euro slightly up versus dollar, Bernanke ahead

* Euro rises but stays below recent seven-week high
* German business sentiment falls more than expected in
August
* Bernanke speaks on Friday, easing expectations could weigh
on dollar

By Wanfeng Zhou
NEW YORK, Aug 27 (Reuters) - The euro edged higher against
the dollar o n M onday after a bigger-than-expected drop in German
business sentiment raised hopes the euro zone's largest economy
will do more to revive the bloc's growth.
Sentiment toward the euro remained uncertain as markets
awaited a series of key events next month, including the
European Central Bank's policy meeting on Sept. 6, followed by
the German Constitutional Court's ruling on the euro zone's
permanent bailout fund on Sept. 12.
German business sentiment dropped for a fourth month in a
row in August to reach its lowest level since March 2010, the
Munich-based Ifo think tank said, with the business climate hit
by increasing worries about the future level of exports.

"The news clearly shows that Germany cannot escape unharmed
if the rest of the euro zone falls into a deep recession," said
Boris Schlossberg, managing director of FX Strategy at BK Asset
Management in New York.
"Therefore policymakers may now temper their insistence on
austerity and instead will pursue more stimulative policies in
order to revive growth."
The euro hit a session high of $1.2535 on Reuters
data after the Ifo survey was released, and was last up 0.1
percent at $1.2518.
It stayed well below a peak of $1.2589 set last Thursday,
its highest since July 4. Traders cited strong offers above
$1.2580 and option barriers at $1.2600. Support lies around
$1.2500.
Volume was thin with London shut for a holiday.
Further gains in the euro are likely before U.S. Federal
Reserve Chairman Ben Bernanke speaks at a central bankers'
gathering in Jackson Hole, Wyoming, on Friday amid expectations
of another round of monetary easing from the U.S. central bank
to stimulate sluggish growth.
Chicago Federal Reserve President Charles Evans said the
U.S. central bank should immediately launch a fresh round of
monetary stimulus and buy bonds for as long as it takes to
produce a steady decline in the jobless rate.
The euro climbed 1.4 percent last week on optimism the ECB
will soon start buying Spanish and Italian bonds to bring down
borrowing costs in troubled euro zone economies.
Speculators trimmed bets against the euro to 123,932
contracts from 137,810 contracts in the week ended Aug. 21, data
from the Commodity Futures Trading Commission showed on Fr iday.

Bets in favor of the U.S. dollar fell to $4.57 billion from
$8.92 billion the previous week, the fifth straight weekly
decline and the smallest net long position since September 2011.
Analysts said investors will closely watch a speech later on
M onday by German ECB Executive Board member Joerg Asmussen, who
said last week a Greek exit from the euro zone was manageable
but not preferable.
Underscoring challenges to a quick solution to the debt
crisis, Germany's Bundesbank has likened the ECB's bond-buying
plan to a dangerous drug and a conservative ally of the German
leader said Greece should leave the currency bloc by next year.

"There's a lot of event risk, and I think this event risk
will keep the euro capped," said Mitul Kotecha, head of global
foreign exchange strategy for Credit Agricole in Hong Kong. He
predicted the euro "will struggle to get above $1.26 this week".
Against the yen, the euro rose slightly at 98.46 yen. The
dollar was flat at 78.65 yen.
The Australian dollar skidded to a one-month low of
$1.0368 and looked vulnerable to further losses on fresh
concerns about China's economy. The Aussie is often used to
express views on the world's second-largest economy.
The Aussie dollar was last down 0.2 percent at $1.0385.