FOREX-Dollar dips vs euro as positive euro zone data weighs

* Euro gains broadly after euro zone PMI, German Ifo data

* Sterling stumbles on weak UK Q2 GDP

* Risk demand intact, some analysts doubt further big rise (Adds quotes, updates prices, changes byline, dateline; previous LONDON)

By Gertrude Chavez-Dreyfuss

NEW YORK, July 24 (Reuters) - The dollar fell against the euro on Friday, with the single currency broadly higher, as figures showing a stabilizing euro zone economy supported expectations for a global recovery this year.

Currencies considered to be high-risk rose slightly as European shares boosted risk demand. However, sterling, one of the currencies that benefit from higher risk appetite, fell after data showed the UK economy contracted at a much sharper-than-expected rate in the second quarter.

In general, solid corporate earnings have boosted risk trades this week, but some in the market pointed out that some companies have shown weak earnings and added that strong performance for the quarter may not automatically point to strength in the future.

"We had the better economic data out of Europe, so we're seeing positive fundamentals overall. That's helping the euro against the dollar and supporting risk sentiment overall," said Brian Kim, currency strategist at UBS in Stamford, Connecticut.

In early New York trading, the euro rose 0.4 percent to $1.4214, after climbing as high as $1.4253, according to Reuters data. Its gains helped nudge the dollar index <.DXY> slightly lower on the day at 78.743.

The euro had gained after the Ifo German business sentiment index rose for a fourth month running to its highest since October 2008 [nLO386633], while initial estimates showed the euro zone services and manufacturing sectors contracted much less sharply than expected in July [nLO728431].

At the same time, UK gross domestic product fell 0.8 percent on the quarter in April-June, taking the annual decline to 5.6 percent. That was far worse than forecasts for a decline of 0.3 percent and followed a hefty 2.4 percent drop in the first quarter. [ID:nLO44167].

The euro traded 0.9 percent higher at 86.59 pence.

Analysts said the euro's rise against sterling following the figures underlined the contrast between the solid euro zone data and weak UK ones. Market participants have speculated the UK economy will recover faster than the euro zone, and while that view remains intact, some said Friday's move suggested that recent sterling gains on that belief may have been overdone.

Sterling fell 0.4 percent against the dollar to $1.6426 , retreating from the day's high of $1.6542 as the GDP figures suggested a UK recovery could take longer than previously thought. (Additional reporting by Naomi Tajitsu in London; Editing by Chizu Nomiyama)