FOREX-Euro's gains fizzle out on German PMI data, dollar steady

Reuters

* 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 to extend gains on Monday, hurt by evidence that growth in the euro zone's largest economy, Germany, was slowing, 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 the fastest pace in more than 2-1/2 years, beating forecasts for a further contraction in the bloc's number two economy.

The currency quickly gave up those gains after data showed the German private sector slowed in March, disappointing some investors who were positioned for a better reading.

The euro jumped to $1.3827 from around $1.3798 before the French data was released, pulling further away from a recent two-week trough of $1.3749. It fell back to $1.3790 after the German data, which left it flat 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 that 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.

The dollar index was up 0.1 percent at 80.184, not far from a three-week peak of 80.354 set on Thursday.

Investors snapped up the dollar last week as they hiked their bets on a possible 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, with any acceleration in the U.S. economic recovery likely to bolster expectations of an earlier normalisation of Fed policy.

"Money tends to flow to currencies with higher rates. The dollar is struggling to extend gains probably because many people had already had a big dollar long position," said Bart Wakabayashi, head of forex at State Street Global Markets in Tokyo.

The dollar was up 0.3 percent against the yen at 102.59 yen. Dollar buyers were eyeing the March 19 high of 102.69 yen.

YUAN HELPS AUSSIE 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 express their views about China, had dipped after a survey showed activity in Chinese factories contracted again in March.

China's flash Markit/HSBC Purchasing Managers' Index (PMI) 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 $0.9105.

Last week, the yuan suffered its biggest weekly drop against the dollar to hit 13-month lows, although there were signs the currency may be finding a base.

The yuan posted its biggest intraday rise against the dollar on Monday since March 2012, boosted by speculation the Chinese government would unveil stimulus measures to support the economy.

(additional reporting by Hideyuki Sano; Editing by John Stonestreet)

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