* Euro rebounds from month lows vs dlr after ZEW survey
* ECB uncertainty, IMF report keep investors cautious
* Dollar gains vs yen as risk appetite, stocks rise
* BoC, Riksbank cut benchmark interest rates
(Recasts, updates prices, adds comment, changes byline)
By Steven C. Johnson
NEW YORK, April 21 (Reuters) - The dollar fell against the
euro on Tuesday as data showing a sharp improvement in German
investor confidence lifted stocks and helped the European
common currency rebound from a recent one-month low.
Uncertainty surrounding the European Central Bank's next
policy move and an International Monetary Fund report warning
that asset writedowns at global banks may exceed $4 trillion
limited the euro's gains, though, and kept investors on edge.
In mid-afternoon trade, the euro was up 0.3 percent at
$1.2955 <EUR=> after hitting a one-month low of $1.2883 on
Monday. Germany's ZEW survey of investor sentiment rose to 13.0
this month from -3.5, the first positive reading since 2007.
The euro also rose 0.7 percent to 127.80 yen <EURJPY=>,
while the dollar added 0.7 percent to 98.65 yen <JPY=>. The yen
tends to struggle when investor risk appetite increases, and
it's also been hurt by news of Japan's weakening economy.
"We got a euro bounce after ZEW and there's consolidation
after a horrible day yesterday in stocks, but my view is this
is an opportunity to sell euros," said T.J. Marta, chief market
strategist at Marta on the Markets in Scotch Plains, New
Jersey.
Analysts said an IMF report that banks worldwide will have
to write down assets by $4.1 trillion to restore global
stability suggests the financial crisis is far from over, which
will boost safe-haven demand for the dollar. For more see[].
Euro gains are likely to be limited by uncertainty about
what unconventional policy steps, if any, the ECB takes to
combat a euro zone recession, analysts said.
The ECB is expected to cut interest rates from 1.25 percent
to 1 percent in May, but it's unclear whether it will follow
the Federal Reserve and other central banks and create money
via other means such as buying corporate or sovereign debt.
Either way, Marta said the euro is likely to suffer. "If
the ECB comes together on quantitative easing, the euro will go
down because the U.S. has already started," he said. "If they
don't, the euro will be punished because the ECB will be
accused of not reacting to the crisis."
Quantitative easing is the process of flooding the banking
system with money when interest rates are already at or near
zero in order to stimulate growth and boost lending.
The Bank of Canada on Tuesday cut rates to 0.25 percent, an
all-time low, and said it will outline on Thursday its strategy
for possible nonconventional measures.
Currency strategists at Scotia Capital said in a research
note that the bank is moving toward "more unorthodox and
arguably more risky monetary policy methods."
The Canadian dollar initially fell against the greenback,
though it recovered its losses in later trade. The dollar was
last down 0.4 percent at C$1.2342 <CAD=> after rising to
C$1.2504.
George Davis, a currency strategist at RBC Capital Markets
in Toronto, said the stock market's rebound helped boost risk
appetite and reverse the Canadian currency's losses.
"The BoC undermined the currency a bit, and earlier, we had
equities looking strained as some of the financial earnings had
fallen short of expectations, but stocks' reversal higher has
helped," he said.
Sweden's Riksbank also cut rates by 50 basis points on
Tuesday, a smaller cut than the market had expected. That
pushed the dollar down 1.8 percent to 8.5432 Swedish crowns
<SEK=>.
(Additional reporting by Vivianne Rodrigues; Editing by James
Dalgleish)
