* German ZEW unexpectedly soars to highest since April 2010
* Euro gains prove short-lived, Italy election worries weigh
* Yen gains as Aso says not considering foreign bond buying
* Dollar/yen faces solid resistance around 94.50 yen
By Jessica Mortimer
LONDON, Feb 19 (Reuters) - The euro fell on Tuesday, erasing brief gains after a German economic sentiment survey showed a jump that was well above forecasts, as caution weighs before Italian elections at the weekend.
The euro hit a session high of $1.3374 just after data showed the ZEW’s index of German analyst and investor sentiment at its highest since April 2010, beating even the highest forecast in a Reuters poll.
But it quickly pared those gains and was last down 0.2 percent at $1.3332, with traders saying investors were tending to sell into any rallies.
It remained above a three-week low of $1.3306 hit on Friday, with traders reporting bids at $1.3310-15.
The euro has come under selling pressure in the wake of recent data revealing a deeper-than-forecast euro zone recession and on concerns that Italy’s Feb. 24-25 election could fragment parliament, potentially hampering the country’s reform efforts.
“The ZEW gave the euro a knee-jerk lift but it’s come off again. The data was pretty good but it’s still not clear indication that the euro zone is out of the woods, plus the Italian elections could be weighing,” said Richard Wiltshire, chief FX broker at ETX Capital.
He added that some were worried that euro zone officials could express concerns about the euro’s strength after European Central Bank President Mario Draghi said on Monday the central bank would have to assess the impact of the currency’s appreciation.
The euro was down 0.3 percent against the yen at 124.69 yen , though it was off an earlier low of 125.45 yen.
The yen turned higher on Tuesday after Japanese Finance Minister Taro Aso said he was not considering foreign bond purchases as part of efforts to ease monetary policy, a day after Prime Minister Shinzo Abe said this was an option.
But its gains were limited, with traders and analysts still expecting the yen to keep weakening on expectations the Bank of Japan will pursue aggressive monetary easing.
“The Aso comments are the reason we have seen the yen strengthening ... But this is just a consolidation phase and the general trend for yen weakness will remain,” said Antje Praefcke, currency strategist at Commerzbank in Frankfurt.
The dollar was steady at 93.52 yen, well below a peak of 94.22 yen hit on Monday after Japan escaped direct criticism from its G20 peers at the weekend for pursuing ultra-easy monetary policies that weaken its currency. However, it remained above chart support at 93.38 yen, the 200-hour moving average.
Having risen about 20 percent since mid-November, the dollar has hesitated to re-test last week’s 33-month high of 94.47 yen when it failed to breach a reported options barrier at 94.50.
Praefcke said investors were locking in profits as the dollar stayed stuck below resistance at 94.50-95.00 yen. Commerzbank expect the dollar to rise to 100 yen by year-end.
But some strategists said the yen’s fall could lose momentum as investors become wary of betting on further yen weakness until there is more clarity on the next Bank of Japan governor.
Tokyo has delayed nominating a new governor for its central bank by a week, fanning talk of friction between the prime minister and the finance minister on the issue.
The dollar index held firm near a six-week high of 80.727 hit on Monday and was last up 0.1 percent at 80.647. It faces resistance from its 200-day moving average at 80.940.