* Euro on pace for best day in more than 2 months
* Dollar Index slips; little changed after PPI data (New throughout, updates prices and market activity to U.S. market open; new byline, changes dateline, previously LONDON)
By Saqib Iqbal Ahmed
NEW YORK, Nov 14 (Reuters) - The euro rose to a 2-1/2 week high against the U.S. dollar on Tuesday and was on track for its largest percentage gain in more than two months, after data showed Germany’s economy shifted into a higher gear in the third quarter.
The euro was up 0.69 percent at $1.1745, set for its largest one-day percentage gain against the greenback since Sept. 7.
“It’s been a euro trade today, and it’s stronger against just about everything,” Brad Bechtel, managing director FX at Jefferies in New York, said. “The numbers out of Germany were pretty good last night.”
Germany’s seasonally adjusted gross domestic product (GDP) rose by 0.8 percent on the quarter, compared with a Reuters poll forecast of 0.6 percent.
In a further positive sign for Europe’s biggest economy, the ZEW institute said investor morale improved in November and prospects for the economy remained “encouragingly positive.”
Germany helped the euro zone economy expand by 2.5 percent in the September quarter compared with the same period in 2016, and more than the United States, data showed on Tuesday.
The euro zone’s annual economic growth rate outstripped that of the United States in the third quarter, setting up 2017 as the best year for the currency area since financial markets crashed a decade ago.
The dollar index, which tracks the greenback against six major currencies, was down 0.37 percent at 94.143. The index was little changed after data showed U.S. producer prices rose more than expected in October.
Inflation has remained stubbornly low, despite the labor market nearing full employment. The main inflation measure tracked by the U.S. Federal Reserve has remained below the central bank’s 2 percent target since mid-2012.
Despite moderate price pressures, the Fed is expected to raise interest rates next month. Investors will now turn their focus to U.S. consumer prices data due on Wednesday.
“To the extent that we get a good number out of there that could be another catalyst for the dollar,” said Bechtel.
Sterling slipped 0.81 percent to a three-week low against the euro, after UK inflation data came in slightly lower than expected, weakening the case for further interest rate rises.
The British pound has been volatile in recent sessions against a backdrop of political turmoil as British lawmakers this week debate legislation underpinning the government’s plan to leave the European Union.
New Zealand’s commodity-linked currency, which is sensitive to signals on Chinese demand, slipped after disappointing data on Chinese retail sales and industrial production.
The kiwi was 0.35 percent lower against its U.S. counterpart.
Reporting by Saqib Iqbal Ahmed; Editing by Susan Thomas