FOREX-Euro climbs to one-month peak on euro zone PMI report
* Euro climbs to one-month high against U.S. dollar
* German, French PMI surveys support euro
* Australian dollar falls as HSBC's China flash PMI hits 11-month low
NEW YORK, July 24 (Reuters) - The euro rallied to a one-month high against the dollar on Wednesday, buoyed by a quicker-than-anticipated expansion in German private sector business activity, a sign of recovery in the euro zone economy.
That news contrasted with weaker PMI data for China, which earlier triggered safe-haven inflows into the U.S. dollar and toppled the growth-linked Australian dollar from a four-week high.
German and French PMI surveys both beat expectations and led some investors to trim bets against the euro. Overall, the business polls indicated that the euro zone economy was likely to expand in the current quarter.
"The news out of Europe was decidedly better with (euro zone) flash PMI manufacturing data popping above the 50 boom/bust line for the first time in two years," said Boris Schlossberg, managing director of FX Strategy at BK Asset Management in New York.
"The improvement in manufacturing was driven by Germany and the periphery economies, indicating that the region's long drawn out recession may be coming to an end," he added.
The euro rose to $1.3256 amid thin volumes, its highest since June 20. It last traded at $1.3228, up 0.1 percent on the day, with offers to sell cited above $1.3260/70, particularly from Asian central banks.
But given "forward guidance" from the European Central Bank that it will keep monetary policy accommodative and perhaps even lower rates to boost growth, any euro gains are likely to be held in check, traders said.
"The PMI data has pushed the euro up," said Chris Walker, currency strategist at Barclays in London. "But we are still short euros as ultimately euro/dollar is a relative monetary policy play. A rise above $1.33 is a sell."
In contrast to the ECB, the Federal Reserve is considering scaling back its ultra-loose monetary stimulus as the U.S. economy outperforms. That has led to a widening in yield spreads between U.S. Treasuries and German Bunds.
While spreads have narrowed since Fed Chairman Ben Bernanke indicated any slowing of the U.S. central bank's stimulus would be data-dependent, the gap between the benchmark 10-year bonds remains near its highest in almost seven years.
The euro's rise also kept the dollar index near one-month lows. The index, which measures the dollar's performance against a basket of major currencies, was trading at 82.114, not far from Tuesday's one-month low of 81.926.
The dollar index was helped in Asian trade by safe-haven inflows after the July flash HSBC/Markit Purchasing Managers' Index for China came in at an 11-month low and dampened investors' appetite for risk.
"What we are seeing is more evidence of emerging markets slowing down while the developed economies are holding up well," said Alvin Tan, currency strategist at Societe Generale.
"What this means is that the dollar and the euro will be preferred over emerging market-related currencies, like the Aussie. Between the euro and the dollar, the latter should outperform, but today's euro zone data has surprised us," he said.
The Australian dollar, which is highly sensitive to economic data from China - Australia's biggest export market - fell sharply after the China PMI data. It was last trading 1.2 percent lower at $0.9186, down from an intraday high of $0.9317.
The dollar was 0.9 percent higher against the yen at 100.26 yen. The U.S. currency was boosted against the yen after a report showed new U.S. home sales vaulted to a five-year high in June even in the face of higher mortgage rates. .
Just $1.4 billion changed hands on Wednesday, using Reuters Dealing data.
"The report, overall, holds a positive undertone," said Christopher Vecchio, currency analyst at DailyFX in New York. "Investors have taken the data as a modest notch in the 'pro-taper' column."