* Euro gains 0.3 percent vs dollar, lifted by ZEW data
* German ZEW indicator rises more than forecast to 56.1
* Riskier FX gain vs dollar, yen as stocks, oil rise
(Updates prices, adds quotes)
By Jessica Mortimer
LONDON, Aug 18 (Reuters) - The euro gained against the dollar and the yen on Tuesday, recovering from losses the previous session as a better-than-expected German investor sentiment survey buoyed optimism about economic recovery.
Germany's ZEW economic research institute's economic sentiment index rose to 56.1 in August from 39.5 in July, taking the indicator to its highest level since April 2006 and beating forecasts for 45.0..
"We expect (German) growth rates to be strong in the second half of the year. This assumption is supported by the improvement in the ZEW indicator," said Ralph Solveen, economist at Commerzbank.
Data last week showed Germany exited recession in the second quarter, with gross domestic product unexpectedly rising.
At 1025 GMT, the euro was up 0.3 percent at $1.4123, having hit a session high $1.4155 on EBS trading systems after the ZEW data. On Monday it fell as low as $1.4045.
Against the yen, the euro rose 1 percent to 134.26 yen, having hit a session high of 134.81 yen on EBS, well above Monday's low of 132.51 yen.
A 1 percent rise in European shares, accompanied by a 0.7 percent gain in U.S. S&P 500 stock futures and a recovery in oil prices also helped lift investor sentiment.
This lent support to the euro and perceived higher risk currencies such as the Australian dollar, which recovered from sharp falls against the U.S. dollar and the yen on Monday, while stronger-than-forecast inflation data lifted sterling.
Analysts noted, however, that investors were yet to be convinced that the recent downward move in equities is over.
"From a sentiment point of view, it was good to see the ZEW bounce, but the market is waiting to see whether the positive tone in equities can last into the U.S. session," said Michael Klawitter, senior currency strategist at Dresdner Kleinwort in Frankfurt.
The dollar rose 0.6 percent to 95.07 yen, while the dollar index dipped 0.2 percent to 79.144. The higher risk Australian dollar gained 0.5 percent to $0.8248.
STERLING SHINES
Headline annual UK CPI inflation unexpectedly held steady in July at 1.8 percent..
Analysts had predicted a further easing below the Bank of England's 2 percent target to 1.5 percent and the news lifted sterling, which gained 0.6 percent against the dollar to $1.6449 .
Sterling has come under broad selling pressure since the BoE opted to expand asset purchases under its quantitative easing programme to a bigger-than-expected 175 billion pounds earlier this month, saying Britain's downturn looked deeper than previously thought. (Reporting by Jessica Mortimer, editing by Mike Peacock)