Euro turns lower vs dollar after weak Ifo

By Jessica Mortimer

LONDON, Feb 23 (Reuters) - The euro turned lower against the dollar on Tuesday after a weak German survey raised concerns about the outlook for the euro zone economy.

Early demand for euros fizzled after data showed Germany's Ifo business sentiment index unexpectedly fell this month, while Italian confidence data and consumer spending numbers from France were also below forecast. [ID:nLDE61M0LN]

The single currency was knocked further after Klaus Abberger, economist for the Ifo think tank, said the German economy - the euro zone's biggest - may have contracted in the first quarter. [ID:nBAT005149]

Caution ahead of testimony from Federal Reserve Chairman Ben Bernanke, which begins on Wednesday, also cut demand for risk, helping the U.S. dollar recover from early losses and keeping the euro close to a nine-month low.

The Ifo survey is a big indicator for the euro zone economy as a whole and the weak number certainly wasn't helpful for the euro, said Paul Robson, currency strategist at RBS.

He added that comments from Bank of England Governor Mervyn King -- which weighed heavily on sterling -- dented risk appetite broadly due to his concerns about the fragile outlook for the global economy, as well as for the UK. See [nKING]

By 1230 GMT, the euro EUR= was down 0.1 percent on the day at $1.3580, erasing an earlier jump of 0.7 percent to the day's high at around $1.3690.

The dollar was up 0.2 percent on the day against a basket of currencies at 80.647 .DXY, recovering from a fall of roughly half a percent to the day's low of 80.088. Last week it hit an eight-month high of 81.342.

Helping the safe-haven dollar's recovery was a 0.5 percent fall in European shares .FTEU3, reversing earlier gains.

Analysts said the market remained mindful of concerns about Greece's fiscal problems, which would keep the euro vulnerable to selling even if it did benefit from short-term bouts of profit-taking after recent weakness.

Against the Swiss franc EURCHF=R, however, the euro traded 0.2 percent higher at 1.4660 francs, after suddenly jumping to around 1.4680 from around 1.4635 in Asian trade.

Traders said the SNB had been seen buying the euro in an effort to stem the Swiss currency's strength, but officials at the central bank declined comment.

RISK DEMAND FIZZLES

Demand for risk had strengthened earlier in the day after hawkish comments from Reserve Bank of Australia Deputy Governor Ric Battellino, who said the central bank needed to be vigilant on inflation as the country enjoys a mining boom [ID:nSYA008213]

The comments lifted the Australian dollar AUD=D4 to a one-month high of $0.9072. It later trimmed gains to trade flat at $0.9003 following the disappointing data out of Europe.

Elsewhere, sterling lost nearly two cents from its high of the day of $1.5574 GBP=D4 to hit a session low of $1.5395 after BoE policymakers said further asset purchases under its quantitative easing programme were possible. [GBP/]

Some analysts also said investors were wary of taking on big positions ahead of Bernanke's testimony.

The market will be looking for any comments on the Fed's decision late last week to raise its discount rate -- the rate charged to banks for emergency loans, which was lowered after the collapse of Lehman Brothers.

Any comments that suggest a rate rise in the second half of this year rather than next year will be bullish for the dollar, said Peter Frank, currency strategist at Societe Generale.

(Additional reporting by Naomi Tajitsu, editing by Nigel Stephenson)