FOREX-Euro hits 1-month high amid rate hike talk

(Updates prices, adds comment)

* Euro hits one-month peak vs dollar

* German Ifo data fans speculation of ECB rate increase

* Fed minutes in focus for clues about U.S. rate outlook

By Steven C. Johnson

NEW YORK, May 21 (Reuters) - The euro hit a one-month high against the dollar on Wednesday after a surprise improvement in German business sentiment bolstered the case for higher euro zone interest rates, which might be needed to fight inflation.

Both the current conditions and expectations components of the Ifo business sentiment index rose, extending the euro's gains on Tuesday after an adviser to the German government said he expects the European Central Bank to hike rates this year.

The comments come as oil prices continue to surge to new highs CLc1, increasing Europe's inflation fears and denting the U.S. growth outlook and the dollar.

"With oil reaching $130 a barrel, the stronger data adds to the complications for the ECB," said Camilla Sutton, currency strategist at Scotia Capital in Toronto. "They are most likely on hold, but their mandate is price stability, so if inflation moves higher, they are more likely to hike than to cut."