* Euro higher on Middle-East demand, strong German survey
* But focus still on euro zone rescue plan
* Sterling hits 8-wk high vs dlr after inflation data
* Canadian dlr hits 2-1/2 yr high vs USD; BOC decision ahead
(Adds quotes, details)
By Anirban Nag
LONDON, Jan 18 (Reuters) - The euro rose on Tuesday on
buying by sovereign funds and after an influential German survey
pointed to robust growth in Europe's largest economy, pushing
euro zone debt concerns into the background.
The ZEW's headline economic sentiment indicator surged to
15.4 points in January from 4.3 points in December, racing past
forecasts for a reading of 6.8. [].
The data helped the euro extend earlier gains on demand from
Middle East accounts and reports Russia was considering buying
euro zone debt, although the upside was limited by continued
uncertainty over plans to beef up the euro zone's rescue fund.
The ZEW numbers came less than a week after comments on
inflation from European Central Bank President Jean-Claude
Trichet prompted talk that euro zone interest rates could rise
sooner than previously thought.
"The strong ZEW is only adding to positive euro sentiment,"
said Audrey Childe-Freeman, EMEA head of currency strategy at JP
Morgan Private Bank.
"We had a hawkish ECB last week, there is greater risk
appetite and the currency market is rewarding currencies where
they believe interest rates will start to normalise."
The euro <EUR=> was up 0.8 percent against the dollar at
$1.3401, having earlier hit $1.3430 on trading platform EBS to
rise briefly above its 100-day moving average at $1.3423. The
next target is the 21-week moving average at $1.3450.
Russia's Finance Minister Alexei Kudrin said on Tuesday the
country was supportive of the euro zone's efforts to see off a
debt crisis and could buy new bonds from its European Financial
Stability Facility (EFSF) rescue fund. []
But he knocked down a newspaper report that Russia, holder
of world's third largest reserves, was ready to resume buying
Spanish debt, which it dropped as an investment after Spain was
downgraded in November. []
The euro's gains helped push the dollar to its weakest in
eight weeks against a basket of currencies <.DXY> at 78.686.
EURO ZONE FOCUS; STG, CAD GAIN
Doubts euro zone policymakers would reach a quick decision
on enhancing a rescue fund to quell a sovereign debt crisis
remained the euro's Achilles' heel.
European finance ministers agreed on Tuesday to take their
time over stengthening the euro zone's rescue fund and delay
publishing new stress tests on the region's shaky banks until
the second half of the year. []
"There are still faultlines, especially pertaining to issues
about the expansion of the rescue fund," said Simon Derrick,
head of currency research at Bank of New York Mellon. "But
countries like Russia and China need the euro as a credible
alternative currency."
JP Morgan Private Bank's Childe-Freeman said there was some
optimism that EU leaders were responding faster than in previous
crises, but she said the euro would face strong resistance at
$1.35 until there was more information on the rescue plan.
Sterling also hit an eight-week high of $1.6060 <GBP=D4>
after much higher-than-forecast UK inflation data
[] while the Canadian dollar <CAD=D4> hit a
two-and-a-half year high of C$0.9837 per U.S. dollar.
The Canadian currency was boosted ahead of a Bank of Canada
policy decision at 1400 GMT. Rates are expected to be left at
1.0 percent, but it is expected to raise its forecast for 2011
growth. []
The euro was up 0.45 percent against the yen <EURJPY=R> at
110.44 yen.
(Additional reporting by Jessica Mortimer; Editing by Catherine
Evans)
