* German Ifo beats expectations, boosts euro
* Euro at risk if larger banks fail stress tests
* Benign result could also weigh on currency
(Adds comment, detail, updates prices)
By Neal Armstrong
LONDON, July 23 (Reuters) - Another strong data release
boosted the euro on Friday when the German Ifo index came in
above forecasts, but analysts said there were downside risks for
the currency, even if bank stress test results were benign.
Ifo said the German Business Climate Index for July was
106.2, beating a consensus for 101.6 and pushing the euro to a
session high versus the dollar of $1.2967 <EUR=>.
[]
The data followed strong euro zone purchasing manager
surveys which helped push the euro up more than 1 percent on
Thursday.
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For a graphic on the IFO and PMIs, click
http://graphics.thomsonreuters.com/F/07/DE_IFOPMI0710.gif
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"We've seen a big jump in the euro as the Ifo data bodes
positive for Germany's growth outlook ... but the move may be
undone if we get a negative surprise from the stress test," said
Sverre Holbek, currency strategist at Danske in Copenhagen.
Official results of the test are due around 1600 GMT.
At 1114 GMT, the euro <EUR=> was up around 0.4 percent at
$1.2930, recovering from the day's low of $1.2861 <EUR=> after
Spanish newspaper El Pais reported that several of the country's
18 savings banks had failed the stress tests. []
"The market's assumption is that several of the Spanish
cajas will fail, along with some peripheral European banks. But
if it goes beyond that the euro reaction will be negative," said
Adam Cole, head of global FX strategy at RBC Capital Markets.
Orders seen around $1.2820 had limited the euro's fall in
early trade, but Citigroup analysts said they saw a downside
risk for EUR/USD after the results are published.
"This reflects an almost no-win situation: either the test
results condemn a sufficiently large number of banks or they
will be deemed inadequate by the market," they said in a note.
Euro/dollar 1-month risk reversals <EUR1MRR=ICAP>, a
measure of currency sentiment, showed a bias for euro downside.
Traders said that partly reflected speculation the euro may
start falling some time after the test results.
The euro was up 0.6 percent versus the yen <EURJPY=R> at
112.75 yen, having risen about 0.9 percent on Thursday. It fell
to the day's low of 111.73 yen after the newspaper report.
The dollar was up 0.3 percent versus the yen <JPY=> at 87.19
yen, staying above 86.27 yen struck on trading platform EBS late
last week, its weakest since December 2009.
The greenback was down 0.3 percent versus a currency basket
<.DXY> at 82.389.
Sterling <GB{=D4> rose over 1 percent on the day to $1.5450,
boosted by data showing Britain's economy grew almost twice as
fast as expected in the second quarter of this year.
[]
(Additional reporting by Naomi Tajitsu; Graphic by Scott
Barber; Editing by Ron Askew)
