* Upside surprise in German, French GDP buoys euro
* Euro zone economy shrinks just 0.1 pct in Q2
* Fed's more upbeat outlook helps spur risk appetite
(Updates prices, adds details, changes byline)
By Naomi Tajitsu
LONDON, Aug 13 (Reuters) - The euro hit a one-week high
against the dollar on Thursday after the euro zone's two biggest
economies posted surprise returns to growth in the second
quarter, helping drag the dollar lower.
The dollar index hit its lowest in a week, also stung by
growing demand for riskier assets including commodities and
higher-yielding currencies after the Federal Reserve on
Wednesday gave its clearest statement to date that it saw the
U.S. recession nearing an end.
Reports on Thursday showed both the German and French
economies expanded 0.3 percent on the quarter in April-June,
wrong-footing expectations for contractions. Other data showed
the entire euro bloc posted a modest 0.1 percent contraction.
The euro climbed after the data, but analysts pointed out
that markets were brushing off some of the less rosier GDP
readings. Despite only a slight quarterly contraction, the euro
zone economy shrank 4.6 percent from a year ago.
"The data wasn't as bad as expected ... but minus 4.6
percent still isn't a good number," said Maurice Pomery,
managing director of Strategic Alpha in London.
He added that the euro's climb after the euro zone figures
had been minimal, which he said suggested that traders were wary
of pushing the single currency much higher.
At 1110 GMT, the euro was up 0.5 percent on the day at
$1.4270 <EUR=>, having hit $1.4281 on electronic trading
platform EBS, its highest since last Friday. Against the yen,
the euro gained 0.6 percent to 137.29 yen <EURJPY=R>.
Further steep gains in the euro, however, are unlikely for
now, said Adam Cole, global head of FX strategy at RBC Capital
Markets in London.
"What we really need to see for the euro to run any further
is some evidence from leading indicators that growth is actually
turning positive at the moment. So there is a limit to how far
it can run," he said.
The dollar edged up 0.3 percent versus the yen to 96.32
<JPY=> but its index <.DXY> fell 0.4 percent to 78.490, its
lowest since last Friday.
Higher-yielding currencies such as the Australian and New
Zealand dollars gained around 1 percent each, extending gains
made the previous day after rebounding from steep losses.
A 1.4 percent climb in European shares <> helped fuel
demand for these currencies, while a pop in U.S. crude oil
<CLc1> near $72 a barrel and a 10-1/2-month high in copper
prices <MCU3=LX> also spurred demand for risky assets.
MONETARY POLICY IN FOCUS
Sterling <GBP=D4> rose 0.8 percent to $1.6630, recovering
from a two-week low hit on Wednesday, when the UK jobless rate
hit 3-year high and the Bank of England's Inflation Report
suggested that markets were expecting rates to rise too early.
The Norwegian crown added to gains a day after the country's
central bank held rates at a record low but opened the door to a
sooner-than-expected rise. The euro <EURNOK=R> hit a three-month
low of 8.5712 crowns, extending a 2 percent slide on Wednesday.
The Fed held its benchmark rate near zero on Wednesday and
said it would likely stay there for an extended period to guide
the way to recovery. It also said the economy was showing signs
of levelling out, which boosted risk sentiment [].
Still, there remained a degree of caution on the Fed's move
to extend the time frame of asset purchases as it indicated the
economy was still vulnerable, analysts said.
"The problem with Fed statement is that the market can read
into it what it wants, leaving both sides content ... hence, for
now it is still unclear which way the USD will jump," said
Stuart Bennett, senior FX strategist at Calyon in London.
(Additional reporting by Ian Chua, editing by Ron Askew)
