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FOREX -Aussie sinks after low inflation, German PMI helps euro

* Aussie falls on lower-than-expected CPI data

* Limited reaction to China HSBC flash manufacturing PMI

* Euro inches higher after German flash PMI (New throughout, changes dateline from previous)

By Patrick Graham

LONDON, April 23 (Reuters) - The Australian dollar sank almost one percent in value on Wednesday after a lower than expected rise in consumer prices appeared to reduce the chances of higher official interest rates this year.

Among the big three currencies, the U.S. dollar was a touch lower against both the euro and yen, taking its value against a basket of currencies to its lowest in a week.

The Aussie has been gaining steadily against the other major currencies since a turn in the rhetoric of its central bank in late January that coincided with improvement in the domestic economy and the climax of a rout in emerging markets.

That, however, leaves the currency way above levels in the low to mid-80s against the dollar previously talked about by officials. The suspicion is a slackening of price pressures may at least give currency bulls some pause for thought.

"The weak CPI number does make it easy for the Reserve Bank to change its tone again and that certainly seems to be what markets are thinking this morning," said Simon Derrick, head of currency research at Bank of New York Mellon in London.

The currency tumbled 0.9 percent to $0.9275, pulling further away from a five-month high of $0.9461 set earlier in April.

Australia's growth prospects, at the heart of the central bank's efforts to talk the currency down last year, have improved, while concerns over China have settled somewhat. That was underscored by a PMI survey on Wednesday that was still broadly weak but in line with forecasts.

Derrick said the Aussie looked to have been one of the beneficiaries since January of a reallotment of central bank reserves, provoked in part by hefty dollar-buying by China and South Korea which then filtered down to other majors.

"All of those factors have played into the Aussie's strength over the past few years and the past few months," he said.

"But if you look at the long run average, it is something like 84 and all the targets that people in the government were coming up with were more in the low 80s."

Other major currencies were subdued, with the euro edging up 0.1 percent to around $1.3817, while the dollar eased 0.1 percent to 102.55 yen.

A jump in the flash estimate of the monthly index of sentiment among purchasing managers in Germany provoked a blip higher for the single currency, hamstrung recently by uncertainty over the possibility of more monetary stimulus.

European Central Bank President Mario Draghi recently made clear the euro's strength is a possible trigger for the central bank to ease monetary policy. He is scheduled to give a speech in Amsterdam on Thursday.

"There has been some jumping around this morning but we are still deep in the recent ranges," said one dealer in London. "The market does not want to push the euro above $1.40."

The single currency was up 0.12 percent at $1.3821.

(Additional reporting by Ian Chua in Sydney; Editing by Catherine Evans)