Euro edges higher vs US dollar, yen on confidence data

* Euro rebounds from month-lows vs dlr after ZEW
* German sentiment survey beats forecasts
* Risk averse environment continues, stocks suffer
(Recasts, adds comments, changes byline and dateline, previous LONDON)
By Vivianne Rodrigues
NEW YORK, April 21 (Reuters) – The euro rose versus the yen and rebounded from one-month lows versus the U.S. dollar on Tuesday as a report showed improvement in German investor confidence in April.
Gains were limited though amid a slide in global bank shares and uncertainty over the European Central Bank next monetary policy move. Lackluster results from Bank of New York Mellon Corp. (BK.N) on Tuesday helped push share markets lower and added to the view financial institutions are continuing to struggle.
„The (German) ZEW data obviously helped the euro earlier today and we saw the currency pop up a bit after the release, said Dustin Reid, senior currency strategist at RBS Global Banking & Markets, in Chicago. „But euro/dollar doesn’t seem to be moving solely on fundamentals. There’s a lot of risk aversion in the markets and people are also paying attention to equities.“
The euro climbed from the lowest level in a month against the dollar after the ZEW monthly poll of German economic sentiment rose to 13.0 from -3.5 in March. It was the first time since July 2007 that the headline index was in positive territory, and beat forecasts for a reading of 1.5.
In morning trading in New York, the euro was 0.1 percent higher at $1.2932 , after trading at a one-month low at $1.2888 on Monday, according to Reuters data.
The single currency traded 0.1 percent higher at 126.57 yen . The dollar was little changed at 97.86 yen .
Any gains in the euro will likely be limited by uncertainty over what unconventional policy steps the European Central Bank may adopt next month, analysts said. The central bank is expected to cut interest rates below their current 1.25 percent.
Analysts also expect the ECB to have to resort to flooding the banking system with money to promote lending and growth, though what method the ECB might use remains in doubt.
Reid at RBS said the European currency may trade as low as $1.20 by the end of the first half of the year.
„Mixed signals by the ECB is at best putting a lid on the euro gains and at worst, it is hurting it,“ he said. „Risks remain on the downside for the currency.“
Other central banks also remain in focus. The Canadian dollar fell after the Bank of Canada cut its benchmark interest rate on Tuesday to a historic low of 0.25 percent. The central bank will outline on Thursday its strategy for possible nonconventional measures such as creating money to buy securities. See [ID:nBAC000297]
The U.S. dollar was last 0.8 percent up at C$1.2496 .
Also earlier on Tuesday Sweden’s Riksbank cut rates by a smaller-than-expected 50 basis points. The Riksbank said the repo rate was expected to remain at a low level until the beginning of 2011. It also said there was some probability of further cuts and of resorting to „other measures“ should the economy deteriorate more than expected.

(Reporting by Vivianne Rodrigues)