Germany leads European stock rally after strong Ifo

LONDON, Jan 25 (Reuters) - European shares scaled fresh multi-month peaks on Friday, with forecast-beating German data and bigger-than-expected paybacks of crisis-time loans by banks fuelling the conviction that the region is firmly on the recovery path.

Frankfurt's DAX index led the rally, scaling five-year highs and closing 1.3 percent higher after the closely-watched Ifo January business morale index beat consensus to match the most optimistic economist's forecast.

Confidence in the euro zone recovery was further bolstered by news that banks will replay 137 billion euros ($183 billion)of European Central Bank crisis loans already next week, around a third more than expected.

The EuroSTOXX 50 index of euro zone blue chips provisionally closed up 0.6 percent at 2,739.57 after setting a fresh 18-month intra-day peak of 2,748.13.

"People are choosing to pounce on any bit of good news. For the moment the trend is very much to the upside," said Stephen Walker, head of equities research and market strategy at Ashcourt Rowan.

"From a really deep fundamental standpoint I probably still have some pretty major concerns but at the moment the market is not in the mood to worry about that. It's a sentiment thing - people have gone from being extremely pessimistic to being far more optimistic. At the moment any news is good news."