* Sharp rise in German sentiment data boosts euro
* Investors position for Fed policy decision due Wednesday
* Italian political worries take a backseat for now
NEW YORK, Dec 11 The euro rose for a second
straight day against the dollar on Tuesday after
forecast-beating German data lifted sentiment toward the
currency while investors steered clear of the U.S. dollar ahead
of a Federal Reserve decision on monetary policy.
Traders said the euro could make further gains, especially
against the dollar, if the Fed signaled more aggressive
quantitative easing in the near term.
But the big driver was Germany's ZEW economic sentiment
index jumping to 6.9 in December, far higher than the -12.0
forecast and the previous reading of -15.7.
"The ZEW reading seemed to suggest that investors believed
that Germany would be able to avoid a recession and begin to
grow again as the year progressed," said Boris Schlossberg,
managing director of FX strategy at BK Asset Management, in New
York. "The news helped to propel the euro/dollar to fresh
The euro was up 0.4 percent on the day at $1.2988
with a session peak in the New York session at $1.3010.
Ulrich Leuchtmann, head of FX research at Commerzbank in
London, said the ZEW data would throw into question the European
Central Bank's grim economic forecasts for the region and
growing expectations of an interest rate cut early next year.
The Bundesbank has also slashed its growth forecast for Germany
in 2013 and warned that the country could tip into recession.
Rate cut expectations, a gloomy economic outlook and
political turmoil in Italy combined to push the euro to a
two-week low against the dollar on Monday. But it recouped lost
ground after technocrat Prime Minister Mario Monti said there
was no danger of a vacuum before the elections.
"The euro's dip below $1.2900 proved to be short-lived,"
said Vassili Serebriakov, strategist at BNP Paribas In London.
"FX markets are showing some notable resilience following news
of Monti's imminent resignation."
Monti said on Saturday he would resign early after former
Prime Minister Silvio Berlusconi abruptly withdrew support for
his technocrat government.
The euro was also up 0.4 percent on the day at
1.2122 Swiss francs, after UBS mirrored Credit Suisse and levied
a charge on some Swiss franc cash deposits.
FED IN FOCUS
Investors were reluctant to buy the dollar with the start of
a two-day U.S. Federal Reserve policy meeting on Tuesday. The
Fed is expected to replace its expiring "Operation Twist"
program with another Treasury bond-buying plan when it announces
its decision on Wednesday.
"We anticipate the Fed will announce Treasury purchases and
as that depresses yields it will have a negative impact on the
dollar and that supports the euro," said Jane Foley, senior
currency strategist at Rabobank in London.
Many economists believe the Fed will announce monthly bond
purchases of $45 billion, although some think it could be more.
Expectations of more Fed easing pushed the Canadian dollar
higher, with the U.S. dollar falling to a two-month low,
while the New Zealand dollar hit a nine-month high. The
New Zealand dollar also rose to a 2-1/2 year high against the
The dollar was last little changed at 82.36 yen, not
far from an eight-month peak touched last month on growing
expectations an election on Sunday could result in pressure for
of more stimulus from the Bank of Japan.
A report showing the U.S. trade deficit widened in October
as exports suffered the biggest drop in nearly four years had
little impact on trading..