(Adds fresh quotes, details) * Euro fails to latch on to gains made on French PMI data * Dollar buyers await more evidence of U.S. recovery * Yuan recovery helps Aussie By Anirban Nag LONDON, March 24 (Reuters) - The euro struggled on Monday, hurt by signs that growth was slowing in the euro zone's largest economy, Germany, though investors were also wary of buying the dollar as they awaited more evidence of a U.S. recovery.
The euro earlier jumped to a European session high after surveys showed French business activity grew in March at its fastest in more than 2 1/2-years, beating forecasts for further contraction in the bloc's second-largest economy.
The currency quickly gave up those gains after data showed the German private sector slowed in March, disappointing investors who were positioned for a better reading.
The euro jumped to $1.3827 from around $1.3798 before the French data were released, pulling away from a recent two-week trough of $1.3749. It fell back to $1.3775 after the German data, which left it down 0.1 percent on the day.
"It was a very mixed bag with France beating expectations (and)... Germany coming in below forecasts," said Alvin Tan, currency strategist at Societe Generale.
"It doesn't look like the ECB will do anything. So the next leg in the euro/dollar pair has to come from the dollar's side. And for that we need U.S. data to outperform and investors to price in expectations of Fed rate hikes." Partly supporting the euro has been the perception that the European Central Bank is reluctant to ease monetary policy any further. The euro's resilience prompted the president of the European Council, Herman Van Rompuy, to complain on Friday that the currency was too strong for euro zone exporters.
Governing Council member Erkki Liikanen said on Monday that the ECB keeps a close eye on the euro to see how it affects inflation, ramping up efforts to talk down the currency. [ID:nF9N0HR00R[ The euro's losses saw the dollar index add 0.15 percent to trade at 80.213, not far from a three-week peak of 80.354 set on Thursday.
Investors snapped up the dollar last week as they bet on a U.S. interest rate hike early in 2015, after new Fed Chair Janet Yellen surprised markets by raising the prospect of such a move.
Traders said further gains for the dollar now depended on the strength of coming data. Any acceleration in the U.S. economic recovery is likely to bolster expectations of an earlier normalisation of Fed policy.
FX VOLATILITY FALLS The dollar was up 0.3 percent against the yen at 102.45 yen with buyers eyeing the March 19 high of 102.69 yen.
Implied volatility - a gauge how sharp currency swings will be - is near multi-month lows. Analysts said that suggested the yen, a safe-haven currency, is likely to underperform.
"Quiet markets and low volatility will support carry trades. Over time, the yen should renew its status as the preferred funding currency, given a central bank printing money aggressively and BIS data showing yen cross-border lending still growing," said Chris Turner, head of FX strategy at ING. "We favour dollar/yen in a 102-103 range in the short term." A recovery in the Chinese yuan helped the Australian dollar recover from lows. The Aussie, which is used as a more liquid proxy by investors and speculators to back their views on China, had dipped after a survey showed activity in Chinese factories contracted again in March.
China's flash Markit/HSBC Purchasing Managers' Index fell to an eight-month low of 48.1 in March from February's final reading of 48.5.
The Aussie dropped to $0.9048 on the March number, but it kept clear of last week's low of $0.8990 and later drifted back up to $0.9110, 0.3 percent higher on the day.
(additional reporting by Hideyuki Sano; Editing by Larry King)