* ECB interest rate cut next week seen possible, but not a given
* Japan Ministry of Finance data shows Japan capital outflow last week
* Australia, New Zealand markets closed for holidays
By Lisa Twaronite
TOKYO, April 25 (Reuters) - The euro bounced back against the dollar and yen in Asian trading on Thursday, as investors covered some short positions taken in the wake of disappointing German data.
The Munich-based Ifo think tank’s survey of German business sentiment showed its second straight monthly drop in April. That heightened fears about the outlook for the euro zone’s largest economy and added to speculation that the European Central Bank will cut rates soon.
The downbeat Ifo survey came on the heels of German purchasing managers’ index data on Tuesday, which showed a sharp drop in business activity.
But some market participants said that despite the recent weak data, a rate cut by the ECB to its already record-low 0.75 percent at its meeting next week is far from a given.
“Of course the ECB will consider cutting rates, but it also could discuss how to spread the monetary easing effects to other countries like Spain or smaller countries,” said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.
Recent comments suggest that some central bank members are likely to consider other options besides cutting interest rates, such as loan programmes, he said.
The ECB has room to act on interest rates if economic conditions remain weak, ECB Vice President Vitor Constancio said on Wednesday.
The euro added about 0.3 percent to $1.3050, moving further away from a two and a half week low of $1.2954 tapped on Wednesday.
Against the yen, the euro tacked on 0.1 percent to 129.71 yen, after rising as high as 129.90 yen, and well above its overnight low of 128.78 yen.
The dollar was steady against its Japanese counterpart at 99.43 yen, still shy of the 100-yen mark after suffering bad news of its own on Wednesday, when U.S. data showed orders for durable goods marked their biggest drop in seven months in March.
The U.S. unit hit a four-year high of 99.95 yen on the EBS trading platform on April 11, a week after the Bank of Japan unveiled its radical monetary stimulus programme.
In recent sessions the dollar has been flirting with the 100-yen level -- above which it last traded in April 2009 -- but options barriers have thwarted every attempt to breach it so far.
“My view on that 100 level is that it’s just a number. The bigger issue is what happens after it breaks, and whether it’s sustainable,” said Sue Trinh, senior currency strategist at RBC in Hong Kong.
Data from Japan’s Ministry of Finance on weekly capital flows showed that Japanese investors remained net sellers of foreign bonds, unloading a net 862.6 billion yen in the week to April 20.
Investors have been closely watching flows data in recent weeks for any indication that the BOJ’s massive stimulus unveiled on April 4 has pushed Japanese investors to seek higher returns overseas, which would usher in further yen weakness. Major Japanese life insurers have recently expressed caution about shifting funds into foreign bonds.
Looking ahead, the BOJ will update its forecasts after its policy meeting on Friday from which no new major monetary steps are expected. Investors will see whether BOJ Governor Haruhiko Kuroda’s two-year time frame to hit a 2 percent inflation target will become the bank’s official forecast, even though many analysts believe such a prediction might be too optimistic and could put the bank’s credibility on the line.
With markets in Australia and New Zealand closed for public holidays, regional liquidity was thinner than usual, market participants said.
The Australian dollar was about 0.3 percent higher against the greenback at $1.0308, after hitting a nearly one-week high of $1.0317. It moved away from a 6-week low of $1.0219 struck on Tuesday after a weak reading on the Chinese manufacturing sector.