GLOBAL MARKETS-European shares rise, euro falls after low ECB repayment

* Low ECB loan repayment pushes euro to 6-week low

* European shares, commodities rebound after sharp losses

* Italian elections at weekend in focus

LONDON, Feb 22 (Reuters) - The euro hit a six-week low on Friday after banks paid back less than expected of their ECB crisis loans, while European shares recovered some of the previous session's sharp losses as investors went in search of bargains.

Euro zone banks paid back just over 61 billion euros ($81 billion) of the 530 billion they took last year in the second of the ECB's twin-funding injections, well below the 130 billion euros expected by traders polled by Reuters.

It means there remains more than enough cash in the banking system to keep downward pressure on money market rates and highlights that some banks clearly still feel the need to keep hold of the ECB's emergency cash.

The euro fell to a six-week low of $1.3157 after the ECB published the data from around $1.3210 beforehand. It has fallen around 1 percent this week as worries about the bloc's recovery prospects have resurfaced and is more than 3.5 percent lower than at the start of the month.

In contrast, stock markets rebounded as investors looked to take advantage of Thursday's sharp sell-off, which came on the back of surprisingly hawkish Federal Reserve minutes and disappointing European PMI data.

European shares on the FTSEurofirst 300, which lost 1.5 percent in the previous session, were up 1.1 percent by 1145 GMT, putting them back on course for a small weekly rise.

London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX were up 0.8, 1.5 and 1.1 percent respectively, helping lift MSCI's world share index 0.2 percent for the day.

"The markets took a heavy dive earlier this week, but they're showing signs of a partial recovery," said Berkeley Futures associate director Richard Griffiths.

"The fact that traders are still buying on the dips shows that they're hoping that the global economic recovery will continue, although it will take time."

New forecasts from the European Commission did little to dampen the mood after they pushed back the euro zone's return to growth to 2014.

The 17-nation bloc, which generates nearly a fifth of global output, will shrink 0.3 percent in 2013, the forecasts showed, meaning the region will remain in its second recession since 2009 for a year longer than originally expected.

DEFICITS

Earlier in the day, the German Ifo business climate indicator for February beat all forecasts as it rose for a fourth consecutive month, suggesting Europe's largest economy could rebound strongly after a dismal end to 2012.

The Commission's forecasts underscored the increasing division between muscular economies such as Germany's and those in the debt-strained parts of the euro zone.

Spain will badly miss agreed debt targets, the projections showed, as will France and Portugal. All three countries have already indicated as much and will now hope for more leeway from Brussels as the bloc looks to avoid austerity-induced paralysis.

"What has raised some eyebrows is the budget balance figures. For instance, for Spain it is more than a 10 percent deficit for this year, which seems to be at odds with what the government has been saying," said Nick Kounis, head of macro research at ABN Amro in Amsterdam.

Other than the economy, European focus was on the weekend election in Italy.

Hope of a strong government emerging from the vote have been shaken in recent weeks as a strong campaign by former Prime Minister Silvio Berlusconi has opened up the three-way race with Mario Monti and centre-left leader Pier Luigi Bersani.

While economists fear an unstable outcome could derail Italy's drive to repair its finances, bond markets are not currently pointing to a return of serious tensions.

Italian 10-year yields were 3 basis points lower at 4.45 percent, well within this year's range around 4.10-4.75 percent. Safe-haven German government bonds were 8 ticks higher.

REBOUND

Like equities, commodities enjoyed a rebound from Thursday's big sell-off, which was driven by fears that the U.S. Federal Reserve maybe edging closer to ending its ultra-loose monetary policy, which has flooded the markets with liquidity.

The dollar which had hit a 5-1/2 month high this week, was down slightly ahead of what was expected to be a positive start on Wall Street later, as weak U.S. data on Thursday helped balance the Fed concerns.

"After the Fed, people seemed to have a little less conviction that we are going to see indefinite low dollar rates, which have attracted a lot of interest in commodities, especially precious metals," a Hong Kong trader said.

Gold added about 0.6 percent on Friday to around $1,585.20 an ounce but is on course for a weekly decline of 1.8 percent, its second week in the red.

Brent crude oil futures rose 0.8 percent to $114.45, while U.S. crude was up 0.3 percent at $93.13 a barrel, but both are on course for weekly losses of around 3 percent.

Analysts said the Fed's minutes have shifted widely held expectations among investors that world's most important central banks would keep pumping cash into the system to support the economic recovery - a view that has driven a huge rally in all risk asset markets since late last year.

Earlier in the day Asian shares also saw modest rebounds, though many of the region's major indexes have recorded their steepest weekly falls of the year.

In Hong Kong the benchmark Hang Seng Index fell 0.5 percent and finished the week down 2.8 percent, its biggest loss since mid-November last year.

The MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.2 percent, though that was a small recovery from the 1.5 percent fall on Thursday, and left the index set for a weekly loss of about 0.8 percent.