* Euro rises, dollar, yen slip on increasing risk demand
* Sterling hits 2009 high vs dollar
* Australian dollar hits 7-mth high versus U.S. dollar
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By Naomi Tajitsu
LONDON, May 19 (Reuters) - The euro rose on Tuesday, while the dollar and the yen fell after an ongoing recovery in share prices stoked demand for risk, while an expected improvement in German sentiment data due later in the day also boosted the single European currency.
European shares rose 1.4 percent in early trade, taking a cue from broadly higher global stock markets as some investors took better-than-expected earnings results from U.S. firms on Monday as more evidence that the global economy may be crawling out of a recession.
A monthly poll by Germany's ZEW economic think tank on investor sentiment in the euro zone's largest economy is expected to show a -90.0 reading for currency conditions in May, up from -91.6 the previous month. The data is due at 0900 GMT.
Its economic sentiment index is forecast to climb to 20.0 from 13.0. Figures showing that the German economy is starting to recover would likely prod the euro higher, as it would fit the view that the worst of the global downturn may be over.
"The ZEW is likely to improve, so overall the market is again playing on the possibility that we may be seeing the end of the global recession and that is pushing risk appetite up and weighing on the dollar," said Antje Praefcke, currency strategist at Commerzbank in Frankfurt.
By 0810 GMT, the euro traded roughly half a percent higher at a session high around $1.3623.
Also helping to boost the euro was a jump in sterling against the dollar, which rallied to its highest level of the year at $1.5481 following reports that the UK has held talks with investors to gauge interest in buying stakes in part-nationalised lenders.
Gains in the euro and sterling helped to push the dollar down 0.4 percent against a basket of currencies, pulling it away from its highest level in nearly a week touched on Monday.
Despite its broad losses, the dollar rose 0.4 percent to 96.60 yen, recovering from a two-month low of 94.55 yen hit on Monday according to electronic trading platform EBS.
Ongoing bets that the global economy is improving has warmed demand for riskier trades in past weeks.
This has stung both the dollar and the yen as some traders unwind positions in the two currencies -- perceived to be safe-haven options during times of uncertainty -- which were taken on since autumn when the global financial market crisis escalated.
Currencies considered to be high-risk, including the euro, sterling and the higher-yielding Australian and New Zealand dollars were sold off, but have since begun to recover.
On Tuesday, the Australian dollar climbed more than 1 percent to $0.7734, its highest level since early October.
In addition to continuing risk demand, the currency was boosted after Reserve Bank of Australia Governor Glenn Stevens said Australian interest rates were "pretty low".
His comments affirmed expectations that the RBA is near the end of its easing cycle, and that rates will be held steady for now. The central bank has cut rates by 425 basis points since September to a record low of 3 percent.
That remains significantly higher than near-zero rates in the United States, the UK and Japan, while euro zone rates are at a record-low 1.0 percent.
In addition to the ZEW figures on Tuesday, investors will also look to U.S. housing starts data at 1230 GMT for evidence to support optimism about the prospects for an economic recovery.
"Stronger housing figures are likely to boost stocks, further prompting investors to dump long yen positions," said Osamu Takashima, chief currency analyst at Bank of Tokyo-Mitsubishi UFJ.
A Reuters poll showed economists expect housing starts to have risen to 0.52 million in April from 0.51 million in March. Building permits are expected to have increased to 0.53 million from 0.516 million.
(Additional reporting by the Tokyo Forex team, editing by Andy Bruce)