FOREX-Dollar rebounds as economic slump seen near bottom

(Recasts, updates prices, changes byline)

* Leading indicators data suggests U.S. avoiding recession

* Market increasingly sees an end to Fed rate cuts

* German sentiment surveys eyed for clues on ECB rates

By Lucia Mutikani

NEW YORK, May 19 (Reuters) - The dollar rebounded from a 2-1/2 week low versus the euro on Monday after a key forecasting gauge unexpectedly rose in April, suggesting that a sharp economic downturn in the U.S. might be nearing a bottom.

That eased fears about sagging consumer confidence and reassured investors that the Federal Reserve would have room to hike interest rates later this year should record high oil prices put upward pressure on inflation.

The Fed's aggressive interest rates cuts to ward off a recession have undermined the dollar's appeal to foreign investors seeking higher returns in favor of the euro and other high-yielding currencies.

"It was in part the leading indicators report and also some technical reaction," said Michael Woolfolk, senior currency strategist at Bank of New York Mellon.

"There was an attitude in the market that they were willing to buy dollars, given a sufficient catalyst and the problem is we have not seen any positive U.S. data recently. (But) we had mildly positive leading economic indicators support today."

The euro dropped to a session low of $1.5487 EUR=, surrendering overnight gains that had hoisted it to a 2-1/2 week high of $1.5632. It was last quoted at $1.5505, down 0.4 percent on the day.

The dollar pushed to intraday peaks of 104.69 yen JPY= and 1.0572 Swiss francs CHF= as investors cheered news that the private Conference Board's Leading Economic Indicators index rose 0.1 percent after a matching increase in March.

Economists had expected a flat reading in April after the March rise, which had followed five straight months of declines.

ECONOMIC CYCLE BOTTOMING

Analysts said the data showed a weak U.S. economy, but one that had probably sidestepped a recession, pointing out that the details of the report could be consistent with a bottoming in the economic cycle.

"We need probably one or two more months of the stock market at or near the top of the leading economic indicator report for us to be assured that we are seeing a bottom here. But the reaction to that was dollar favorable," said Woolfolk.