FOREX-Euro hits session high on German data, stays vulnerable
* Euro rises to session high after German Ifo data
* German business morale rises sharply in Feb
* Euro stays vulnerable ahead of LTRO, Italian elections
* Yen likely to post 1st substantial weekly gain in 3 months
LONDON, Feb 22 (Reuters) - The euro rose to a session high versus the dollar on Friday after better-than-expected German sentiment data added to expectation that Europe's largest economy was unlikely to tip into recession.
The influential German Ifo business sentiment index coupled with previously released German Purchasing Managers' Index figures on Thursday stood in contrast to poor business activity indexes from other economies like France, which had earlier dealt a blow to hopes the euro zone was on a path of economic recovery.
Strategists, however, said this could only provide a marginal boost to the single currency as there were many underlying concerns about the bloc's outlook, especially ahead of Italian elections this weekend.
"The German figures have given the euro a bit of a lift. There are some bright spots and things seem to be improving so this provides some relief that Germany is not going into recession," said Neil Mellor, currency strategist at Bank of New York Mellon.
"But it is not just about Germany as peripheral economies continue to struggle and data like this can provide the euro a modest lift but it can't provide assurance that its rise is going to continue."
The euro hit a session high of $1.3246 after the data and was up 0.3 percent on the day, recovering from a six-week low of $1.31615 on Thursday, which some speculators saw as an opportunity to buy the currency.
Support for the euro was at $1.3186, a 50 percent retracement of its 10.5-cent rally from November to February. Below that is another major support from its 90-day moving average, at $1.3135, though a break there will leave it open for a test of the Jan. 10 low of around $1.3040.
The single currency tumbled to a six-week low against the dollar and a three-week trough against the yen on Thursday after disappointing euro zone economic data and on concerns the U.S. Federal Reserve would slow down or stop its bond purchase programme.
The euro also stayed vulnerable to losses ahead of the Italian elections.
Prospects of ex-prime minister Silvio Berlusconi's resurgence and that of a fragmented parliament kept markets from taking on riskier trades, as it could hinder the euro zone's third-biggest economy from fighting its longest recession in 20 years.
"The Italian elections are more difficult to predict, if Berlusconi and his parties occupy prominent positions then they really could be a thorn blocking legislation and that is a big uncertainty and the markets doesn't know how to play that," Mellor said.
Before the Italian elections, markets will focus on the amount of three-year crisis loans banks will return to the European Central Bank on Friday. Banks are expected to pay back 130 billion euros of the 530 billion euros they took a year ago.
Strategists say a sizeable repayment could help the euro see some gains. The European Union commission's winter forecasts later today would also be key, as it provides an outlook for France and Spain's budget deficits.
The euro and the dollar rose against the yen, but strategists said the Japanese currency's three-month-old decline on monetary easing expectations is showing signs of losing momentum.
The dollar was up 0.3 percent on the day at 93.39 yen , keeping some distance from its 33-month high of 94.47 hit last week.
"Judging from recent comments, most Japanese ministers don't really wish to push the dollar/yen up beyond 95 yen. I suspect if the yen weakens further, (Finance Minister Taro) Aso will try to rein in the yen's fall," said Minori Uchida, chief strategist at the Bank of Tokyo-Mitsubishi UFJ.
The yen looks set to post its first substantial weekly gain since mid-November, when the announcement of a Japanese election spurred investors to bet more political pressure would be put on the Bank of Japan to take bold easing steps.
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