* Sharp rise in German sentiment data boosts euro
* Fed to kick off two-day policy meeting on Tuesday
* Italian political worries take a backseat for now
By Anooja Debnath
LONDON, Dec 11 The euro rose on Tuesday after
better-than-expected German investor sentiment data boosted
Germany's ZEW index jumped to 6.9 in December, far higher
than the -12.0 forecast and the previous reading of -15.7.
The euro climbed to a session-high of $1.2976 after
the data, from around $1.2960 beforehand and breaking chart
resistance at $1.2973, the 38.2 percent retracement of a sharp
fall that took place between Dec. 5 and Dec. 7.
Traders cited offers above $1.2980 and $1.3000 with near
term support at its two-week low of $1.2880 touched on Monday.
"The ZEW survey was a significant positive surprise and it
helped the euro," said Ulrich Leuchtmann, head of FX research at
Commerzbank. "We have seen a spike in the euro but anything
significantly above $1.3100 is being ambitious due to a lot of
resistance around those levels and will be difficult to hold."
Leuchtmann added that the data will throw into question the
European Central Bank's grim forecasts for the region and
prospects of an interest rate cut early next year. The
Bundesbank has also slashed its growth forecast for Germany in
2013 and warned the country could tip into recession.
Expectations of a rate cut, grim economic prospects and the
fresh political turmoil in Italy combined to push the euro to a
two-week low against the dollar on Monday. But it has recovered
after technocrat Prime Minister Mario Monti assured investors
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. "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
1.2115 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 aggressively
before 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," said Jane Foley, senior
currency strategist at Rabobank.
Many economists believe the Fed will announce monthly bond
purchases of $45 billion, although some think it could be more.
The dollar index stood at 80.263, 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 0.2 percent to 82.50 yen, not
far from an eight-month peak of 82.84 hit last month on growing
expectations of more stimulus from the Bank of Japan.