* Euro hits 2-week high vs dlr after above-forecast EZ PMIs
* German services, French manufacturing sectors expand
* Yen gains, hits 1-mth high vs dlr
* Trader cite reports China may tighten bank capital rules
By Jessica Mortimer
LONDON, Aug 21 (Reuters) - The euro hit a two-week high
against the dollar and a one-month high versus sterling on
Friday as above-forecast euro zone purchasing managers' surveys
strengthened the view that the region is on the path to
recovery.
A provisional purchasing managers' poll revealed the decline
in the euro zone's dominant services sector almost came to a
halt in August and businesses' expectations for the future
soared to their highest level in more than two years.
[].
The news lifted the euro across the board and pushed
European equities up 1.2 percent <>.
Market players were particularly encouraged to see an
unexpected expansion in key areas of the German and French
economies.
A jump in output and expanding order books pulled Germany's
private sector out of an 11-month slide and returned it to
growth in August, while the French manufacturing sector grew for
the first time in 15 months. [] [].
"We have seen clearly that the strong PMIs are supporting
risk appetite, which has boosted the euro, not just against the
dollar but also against sterling," said Michael Klawitter,
currency strategist at Dresdner Kleinwort in Frankfurt.
The euro rose 0.5 percent against the dollar to a two-week
high of $1.4334 <EUR=>, while it pared earlier losses against
the yen to trade up 0.1 percent at 134.35 yen <EURJPY=R>.
The single currency also hit a near one-month high against
sterling of 86.78 pence. <EURGBP=R>
STRONG EZ DATA
The strong PMI data lifted optimism that the euro zone may
be recovering more quickly than previously thought.
The details of the data revealed that German services PMI
rose as high as 54.1, confounding forecasts for a much smaller
improvement to 48.7 and taking the index well above the 50 level
that marks expansion in the sector. French manufacturing PMI
also rose above 50 to 50.2.
"The flash PMI surveys for August provided further evidence
of a recovery in the euro area," said Neville Hill, economist
at Credit Suisse.
"The sharp rises in the German and French composite PMIs
suggest that the recovery in those two economies has gathered
momentum in the third quarter."
But some analysts warned it is far too early to conclude
that the euro zone economy is out of the woods just yet, which
may cap the euro's gains.
"Some of the positive data recently has not been evoking big
reactions and there are still a lot of risks around the corner,"
said Neil Mellor, currency strategist at Bank of New York
Mellon.
Investors' reluctance to take on too much exposure to risk
was reflected in a rise in the Japanese yen -- which typically
rises in times of heightened risk aversion -- to hit a one-month
high against the dollar.
The dollar fell 0.4 percent against the yen to 93.84 yen
<JPY=>, having hit a one-month low of around 93.47 on EBS
trading systems.
Some traders said sentiment was dented by earlier reports
that China's banking regulator -- concerned record lending could
lead to a spike in bad loans -- may tighten banks' capital
rules. [].
Dresdner Kleinwort's Klawitter also noted that the yen may
have garnered some support ahead of a national election in Japan
on Aug. 30, with the opposition Democratic Party leading Prime
Minister Taro Aso's Liberal Democratic Party in newspaper polls.
[].
(Reporting by Jessica Mortimer; Editing by Toby Chopra)
