FOREX-Euro rises before Ifo, gains limited by Draghi comments
* Draghi says ECB ready to inject liquidity
* Dudley says Fed was right to maintain stimulus
* German Ifo data due at 0800 GMT
* Concerns over budget showdown in Washington spreading
LONDON, Sept 24 (Reuters) - The euro rose against the dollar on Tuesday before German sentiment data, but gains could be capped after the European Central Bank said it stood ready to do more to keep market rates down.
The euro slipped on Monday after ECB President Mario Draghi said the bank was prepared to offer banks more long-term loans to keep money-market rates from rising to levels that could hurt the economy.
Analysts said the euro could gain some support if September German business sentiment data due from the Ifo think-tank at 0800 GMT, beats forecasts and August's 16-month high.
The euro was last at up 0.1 percent at $1.3508. Support was cited at the August high of $1.3453. Large options expiries were reported at $1.3500 and $1.3200.
"The euro recovery we are seeing at the moment is putting Draghi's statement into perspective that a possible LTRO is dependent on the economic outlook staying weak," said Ulrich Leuchtmann, head of FX research at Commerzbank.
"The German Ifo is quite decisive, a positive number today might make Draghi's statement yesterday not very relevant. We are expecting Ifo to be relatively weak, so we remain sceptical." He added that a subdued reading would cap the euro at $1.3530, while a strong number could push it above $1.3550.
Dovish comments from an influential Federal Reserve official kept the dollar under pressure too. Markets remain concerned that a political showdown in Washington could see the government shut down, or at the very extreme, default on its debt.
"The market is getting nervous about the U.S. debt deal. It's not clear whether they can reach a deal easily," said Minori Uchida, chief FX strategist at the Bank of Tokyo-Mitsubishi UFJ in Tokyo.
Last week, the Fed stunned markets by leaving its massive stimulus in place, despite having allowed talk of taper to flourish in the months leading up to the Sept. 17-18 meeting.
New York Fed President William Dudley, a well known dove and close ally of Fed Chairman Ben Bernanke, defended the action, saying on Monday the central bank must for now continue to push hard against threats to the economy.
Dudley cited fiscal uncertainties as Congress prepares to hash out a deal to avoid a government shutdown and raise the U.S. debt ceiling.
His comments kept the dollar pinned down against many currencies. The dollar index was last at 80.44, not far from the seven-month trough plumbed last week of 80.06.
But the dollar was up 0.2 percent at 99.03 yen, off Monday's high of around 99.36, while the euro was up 0.4 percent at 133.82 yen.