FOREX-Euro steady after German election; Aussie up on China flash PMI
* Euro briefly rises but fails to gain momentum
* Merkel wins election but must find ruling partner
* Aussie rises as China factory sector growth picks up
SINGAPORE, Sept 23 (Reuters) - The euro held steady versus the dollar on Monday, failing to gain much momentum after a general election in Germany left Angela Merkel conservatives just short of the votes needed to rule on their own.
The euro last traded near $1.3525, little changed from late U.S. trade on Friday and off an intraday high of $1.3555 set early in the Asian session on Monday.
Although Merkel led her conservatives to their strongest election result in over two decades, the election outcome means she will be forced to seek a coalition partner.
Merkel will most likely have to reach out to the centre-left Social Democrats (SPD). Her allies in the outgoing government, the market-friendly Free Democrats, suffered an exit from the Bundestag.
"Mixed results in terms of the euro overall," said Callum Henderson, Singapore-based global head of FX research for Standard Chartered Bank.
"We'll see what happens in terms of the negotiations for a coalition. The most likely outcome is a grand coalition," he said, referring to a possible coalition between Merkel's conservative bloc and the SPD.
Polls show that the consensus-driven German public would welcome a right-left partnership, as would Berlin's European partners, who hope the SPD might soften Merkel's austerity-focused approach to struggling euro zone members.
Moves among major currencies were fairly subdued.
The dollar eased 0.1 percent versus a basket of currencies to 80.394 but remained above a seven-month low of 80.060 set last week, after the U.S. Federal Reserve surprised markets by keeping the pace of its bond-buying stimulus unchanged at $85 billion per month.
Comments by a top Federal Reserve official on Friday suggesting that there is a chance the central bank may scale back stimulus next month helped lend some support to the greenback.
St. Louis Fed chief James Bullard kept the door open for an October move, saying it was possible if inflation and unemployment data warranted it.
Other Fed officials including Dennis Lockhart, William Dudley and Richard Fisher are due to speak later on Monday. Dudley is head of the powerful New York Fed and a permanent voter, so his words carry weight in markets.
The Australian dollar gained a lift from fresh signs of a turnaround in the Chinese economy.
The flash HSBC Purchasing Managers' Index (PMI) showed that growth in China's factory sector accelerated to a six-month high in September.
The Australian dollar rose 0.3 percent to $0.9420.
Receding worries about a sharp economic slowdown in China have supported the Australian dollar recently, helping it recover from a three-year low of $0.8848 set in early August.
Some caution about the outlook for China's economy may be in order, however, when taking into account China's economic reform efforts, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.
"The direction is toward lowering potential growth rates to a certain extent and to make progress on structural reforms," Okagawa said.
"It will probably be hard for the Australian dollar to keep rising to levels above $1.0 and to head sharply higher from there," he added.
Chinese Premier Li Keqiang has an ambitious plan to restructure China's economy away from credit, investment and export driven growth to one where consumers provide the main impetus.