* German business morale falls short of expectations
* Euro hits near three-week low versus dollar
* Dollar still hovering within sight of 100 yen mark
By Anirban Nag
LONDON, April 24 The euro rose from a near
three-week low against the dollar on Wednesday on hopes Italy
can resolve its political gridlock, but gains could be fleeting
after weak German data fanned talk of rate cuts.
A survey by Germany's Ifo think-tank showed business morale
dropped for a second month in April, fuelling concerns about the
health of the euro zone's largest economy.
The survey knocked the euro, already vulnerable after German
PMI data on Tuesday showed business activity dropping sharply in
Investors focused on the possibility of the European Central
Bank cutting its main refinancing rate, which is already at a
record low 0.75 percent.
Recent comments by ECB policymakers have stressed falling
inflation and poor euro zone growth prospects, suggesting
policymakers are leaning towards a further cut at their next
meeting on May 2.
The euro dropped to $1.2954, its lowest level since
April 5, before paring losses to last trade up 0.2 percent on
the day at $1.3015. An Asian central bank and a supra-national
investor were cited as buyers.
Traders said the euro was also drawing support from reports
that Italian President Giorgio Napolitano had called Enrico
Letta, deputy head of the centre-left Democratic Party, to form
a new coalition government.
The formation of a government in euro zone's third-largest
economy after months of uncertainty would offer relief to
investors looking to buy assets in the region.
"But the risk-reward in the euro is to sell it into any rise
to $1.3100/50," said Mankash Jain, head of FX and Investment
Management at hedge fund Solo Capital. "The data from Germany
has been weak, the Ifo was weak and if the ECB were to cut rates
next week, the euro would fall."
Carolin Hecht, currency strategist at Commerzbank said there
would be support for the euro around $1.2950 and the 200-day
moving average at $1.2940, but the currency could slide to $1.28
in the run-up to the ECB meeting.
"Everyone is now really betting on the ECB to come to the
stage and cut the key rate," Hecht added.
EURO AT 5-WEEK HIGH VS SWISS FRANC
Despite expectations of a rate cut by the ECB, the euro rose
to a five-week high against the Swiss franc on renewed
speculation that the Swiss National Bank could raise the floor
imposed on the euro/Swiss franc pair to 1.25 francs from 1.20.
The euro rose to 1.2319 francs, its highest since
mid-March. It went past a reported options barrier at 1.2300
francs, with traders citing talk of a Swiss bank selling the
franc against the dollar.
The euro rose 0.2 percent to 129.51 yen, but well
off a more than three-year high of 131.10 yen hit earlier this
month. The dollar was steady at 99.50 yen, having pulled
back from the day's high of 99.77 yen.
A trader for a Japanese bank in Asia said yen-buying by
options players, institutional investors and Japanese exporters
blocked the dollar's earlier rise.
Many traders are braced for a test of the 100 yen mark in
coming days, although offers were reported around 99.80-85 yen
that could limit the dollar's gains in the short term.
The dollar hit a four-year high of 99.95 yen on April 11
after the Bank of Japan unveiled a sweeping monetary stimulus