* Euro up vs dollar on Middle East buying, awaits ZEW
* Profit-taking knocks dollar off five-week high
* Yen-selling curbed by sharp rise in Japan bond yields
By Anirban Nag
LONDON, May 14 The euro rose versus the dollar
for the first time in four sessions on Tuesday, helped by
profit-taking on bets favouring the U.S. currency and by
expectations that German investor morale could nudge higher.
But the shared currency is unlikely to make large gains due
to concerns the euro zone economy overall is still struggling.
That keeps alive the risk that the European Central Bank
could cut its deposit rate, at which lenders park surplus funds
at the central bank, to a negative rate from zero, making it
unattractive to hold euros and hence keeping the currency under
pressure, traders said.
German ZEW's monthly poll of economic sentiment is forecast
to rise to 38.3 in May from 36.3 while currency conditions are
also expected to show some improvement.
A better-than-expected number could lift the euro to $1.3050
with stop-loss buy orders cited at $1.3055 while a disappointing
number could push it down towards $1.2950, traders said.
The euro was up 0.2 percent at $1.3000, with traders
citing buying by Middle East investors, helping it stay well
above its recent five-week low of $1.2935. It gains pushed the
dollar index away from a five-week high of 83.438 struck
on Friday to trade at 83.109 on Tuesday.
"A positive ZEW survey will help the euro as it will
indicate the worst is over," said Marcus Hettinger, FX
strategist at Credit Suisse.
"But a recovery will be slow and with expectations of
negative rates hanging, there are risks to the downside. Overall
we expect a range of $1.27-$1.33 in coming weeks."
Traders said a Financial Times report that U.S. hedge funds
were turning bullish about euro zone assets was also helping
sentiment towards the single currency.
The dollar was down 0.4 percent at 101.40 yen, having
pulled back from a 4 1/2-year high of 102.15 yen set on Monday.
Traders said the yen-selling spree was on pause due to a
spike in Japanese government bond yields, which reduces the
relative attraction of foreign bonds for Japanese investors.
But the dollar was underpinned by data showing U.S. retail
sales unexpectedly rose in April.
"Dollar/yen may be consolidating around 100-102.50 yen for
now. But if upcoming U.S. economic data is strong, the dollar
could pick up momentum," said UBS's Hiroshi Maeba in Tokyo.
There is a raft of U.S. data this week including Wednesday's
industrial production, housing starts and consumer prices on
Thursday and consumer sentiment data on Friday.
The rise in core retail sales, in the wake of strong job
growth in the last three months, strengthened the view the U.S.
Fed could scale back its asset-buying programme later this year.