* Euro under pressure near 8-month low vs dollar
* Upbeat U.S. employment data supports dollar vs yen
* Japan CPI as expected, muted reaction from dollar/yen (Updates prices, adds more comment)
By Patrick Graham
LONDON, July 25 (Reuters) - The euro struggled to hold above eight-month lows against the dollar on Friday, hurt by a dive in Germany's Ifo survey of business sentiment as the U.S. currency headed for its strongest week since March.
The Ifo numbers, the most watched forward-looking indicator of growth in the euro zone's largest member economy, fell for the third month running, with both of its main indexes declining much more than forecast.
The euro fell to as low as $1.3440 in response, although it resisted several attempts in morning European trade to break through Thursday's eight-month lows around $1.3438.
The prospect of an exchange of growth-sapping sanctions with Russia after the downing of a Malaysian airliner in Ukraine last week have added to a growing list of concerns over European growth, banking and public finances.
"The Ifo was the first place where the potential negative impact on business sentiment resulting from recent geo-political events was likely to show up," said Ian Stannard, a strategist with Morgan Stanley in London.
"We believe that the euro has now traded (at) a major top and we continue to look for a decline towards the $1.3295 area initially and then $1.31 over the medium term."
Leading banks have been forecasting a decisive break higher by the dollar against the euro since early this year but have been frustrated by lukewarm U.S. data and yield-seeking investment flows into European stocks and bonds.
U.S. economic numbers have finally shown some more consistency in the past couple of months and the slightest hints of a more hawkish tone from Federal Reserve chief Janet Yellen have proven triggers for a jerk higher in the currency.
But there is still some caution around.
"Really, one could feel sentiment among the dealers turn against the euro sometime in May and my feeling is that may finally now be coming through," said Jane Foley, a strategist with Rabobank in London.
"I did have $1.35 for the end of this year, and obviously we have broken through that now. If it is still there in two weeks then I will think about revising that down a little."
The dollar was little changed at 101.76 yen after gaining more than 0.3 percent overnight to a two-week high of 101.86 after weekly U.S. filings for first-time jobless benefits fell to their lowest since early 2006.
The greenback, which has been closely tracking U.S. debt yields, was also helped by a rise in yields after the strong employment indicator. It was poised to gain about 0.4 percent on the week against the Japanese currency but lacked the momentum to test the 102.00 threshold.
Market players said selling of yen crosses was a factor capping further advances by the dollar.
"Selling of sterling, Australian dollar and New Zealand dollar against the yen is helping prevent a further rise in dollar/yen. Profit-taking in such yen crosses is a key driver, rather than trades in dollar/yen itself," said Bart Wakabayashi, head of currencies at State Street in Tokyo.
British economic growth data had also been keenly awaited but a quarterly expansion bang in line with forecast at 0.8 percent left sterling little moved.
The pound fell back below $1.70 for the first time in a month this week, but unlike the euro it has been able to rely on strong support from an improving economy throughout that period.
It traded just 0.1 percent lower on the day at $1.6984, down almost 0.7 percent since last Friday.
(Editing by Catherine Evans)