FOREX-Euro/dlr hits 2 1/2-mth low, hit by ZEW survey

* Euro/dlr hits 2-1/2-mth low, dlr index highest since Oct

* Bank, fiscal concerns, ZEW slip prompt euro selling

* Year-end short covering boosts dollar broadly

(Adds details, updates prices)

By Naomi Tajitsu

LONDON, Dec 15 (Reuters) - The euro hit a 2-1/2-month low against the dollar on Tuesday, stung by concerns about the health of euro zone banks, while a slip in German economic sentiment also prompted traders to dump the single currency.

The dollar rallied to its highest versus a currency basket since the start of October, as questions surrounding the fiscal positions of euro zone states also curbed risk demand and prompted short covering in the U.S. currency.

The euro fell to $1.4527 according to Reuters data, its weakest since early October, extending losses after the German ZEW think tank said economic sentiment fell in December, suggesting any recovery in the country may be sluggish. [ID:nDEG005610]

A report by Austria's Die Presse which said monetary authorities had put Oesterreichische Volksbanken, the nation's No. 4 bank, on a watchlist also knocked the euro. [ID:nSGE5BE09B]. The bank said the report was inaccurate.

Still, risk-averse traders sold the euro following the report, which came a day after Vienna said it would nationalise one of its banks to avoid a collapse.

Tuesday's report highlighted banking woes and the weak fiscal positions of some euro zone countries. After having its credit rating cut last week, Greece announced on Monday spending cuts in an effort to rein in its debt. [ID:nLDE5BD2DA]

"Problems in Greece continue, and the news about the Austrian bank yesterday hasn't helped either," said Ian Stannard, currency strategist at BNP Paribas in London.

"Overall, downward pressure on the euro continues, and the weak ZEW survey is also negative."

By 1219 GMT, the euro traded at $1.4537, down 0.8 percent on the day.

The euro sliced through key support at $1.46, and market participants were focusing on the $1.4470-1.4480 level.

That level roughly marks the 23.6 percent Fibonacci retracement of the euro's climb from its low hit in late 2008 to a 16-month high around $1.4150 late last month, and analysts said a fall beyond that may open the door to more losses.

FED MEETS

The euro's slide helped to push the dollar up to a 2-1/2-month high of 76.922 against a currency basket <.DXY>.

The dollar rallied across the board, climbing a full percent to 89.51 yen , and rising against higher-risk currencies, including sterling and the Australian dollar.

Following months of selling on the view U.S. interest rates will stay low while those in other countries rise, the dollar has rallied this month as strong economic data has spurred some optimism the U.S. economy is improving.

The euro has fallen around 3 percent versus the dollar since the start of the month and is on track for its worst monthly performance since January. The dollar index is up 2.7 percent so far in December, poised for its best month this year.

Analysts said investors were keen to close short positions built up in the dollar all year before 2009 book closings and that this may support the dollar for the rest of the month.

"There's still a lot of momentum to stop out short dollar positions," said Carl Hammer, currency analyst at SEB in Stockholm.

The Australian dollar fell roughly 1 percent on the day against the U.S. currency, stung by minutes from the Reserve Bank of Australia's December meeting, which were not as hawkish as the market had expected.

Some saw the minutes as a possible sign the RBA may pause its interest rate raising cycle. [ID:nSGE5BD0TE]

The Federal Reserve starts its two-day meet on Tuesday and is likely to keep rates unchanged near zero.

The focus will be on the accompanying statement after upbeat U.S. sales and jobs data has spurred some speculation that the Fed may begin winding down its fiscal stimulus measures soon, although few see this happening this month.

(Editing by Nigel Stephenson)