* Euro recovers as Italy political worries subside for now
* Focus on German ZEW sentiment data due 1000 GMT
* Improvement in ZEW could give euro a boost
* Fed to kick off two-day policy meeting Tuesday
By Anooja Debnath
LONDON, Dec 11 The euro recovered from near
two-week lows on Tuesday before German investor sentiment data
which was expected to improve and as concerns over Italy's
political turmoil subsided.
The Mannheim-based ZEW think tank releases its monthly
survey at 1000 GMT. Its economic sentiment index is forecast to
edge up to -12.0 in December from -15.7 previously.
Analysts said an improvement could see the euro rise,
although a below-expected reading would exacerbate concerns
about a shaky outlook for Europe's largest economy.
The euro was steady at $1.2943, staying well above a
low of around $1.2880 printed on Monday. Further gains could see
it target chart resistance at $1.2973, the 38.2 percent
retracement of sharp fall between Dec. 5 and Dec. 7.
"Markets are expecting an uptick from the previous month (in
ZEW data) and if that happens that will reassure euro/dollar,"
said Jane Foley, senior currency strategist at Rabobank.
"The Bundesbank ... has warned of the potential for poor
news in Germany, and against that backdrop any good news in the
ZEW will be quite supportive for the euro."
The euro was knocked last week after the Bundesbank slashed
its growth forecast for Germany in 2013 to 0.4 percent from the
initial 1.6 percent and warned the country could tip into
The euro fell on Monday as news of Italian Prime Minister
Mario Monti's earlier-than-expected resignation saw 10-year
Italian bond yields jump. But it later recovered after Monti
said there was no danger of a vacuum ahead the elections.
"The euro's dip below $1.2900 proved to be short-lived,"
said Vassili Serebriakov, strategist at BNP Paribas. "FX markets
are showing some notable resilience following news of Monti's
Monti's move came after former prime minister Silvio
Berlusconi abruptly withdrew support for Monti's technocrat
government, claiming that his reform and austerity steps were
dragging Italy "to the brink of a precipice."
The euro was also 0.3 percent up on the day at
1.2111 Swiss francs, with traders citing speculation that Swiss
banking giant UBS could mirror Credit Suisse and implement
negative interest rates on some Swiss franc cash deposits.
FED IN FOCUS
Investors were reluctant to aggressively buy the dollar,
ahead of a two-day U.S. Federal Reserve policy meeting starting
on Tuesday. It is expected to replace its expiring 'Operation
Twist' programme 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," Rabobank's Foley said.
Many economists believe the Fed will announce monthly bond
purchases of $45 billion, although some think it could be more.
The dollar index was steady at 80.301, retreating
from at two-week high of 80.658 hit on Monday.
Expectations of more easing from the Fed pushed the Canadian
dollar to a two-month high of C$0.9862 per U.S. dollar,
while the New Zealand dollar hit a nine-month high of $0.8367
But the dollar edged up 0.1 percent to 82.39 yen,
staying not far from an eight-month peak of 82.84 hit last month
on growing expectations of more stimulus from the Bank of Japan.
(Additional reporting by Ian Chua and Hideyuki Sano/editing by
Chris Pizzey, London MPG Desk, +44 (0)207 542-4441)