* Euro hits 2-week high vs dlr after above-forecast EZ PMIs
* German services, French manufacturing sectors expand
* Yen gains, hits 1-mth high vs dlr
* Trader cite reports China may tighten bank capital rules
By Jessica Mortimer
LONDON, Aug 21 (Reuters) - The euro hit a two-week high against the dollar and a one-month high versus sterling on Friday as above-forecast euro zone purchasing managers' surveys strengthened the view that the region is on the path to recovery.
A provisional purchasing managers' poll revealed the decline in the euro zone's dominant services sector almost came to a halt in August and businesses' expectations for the future soared to their highest level in more than two years. [ID:nLL332549].
The news lifted the euro across the board and pushed European equities up 1.2 percent <.FTEU3>.
Market players were particularly encouraged to see an unexpected expansion in key areas of the German and French economies.
A jump in output and expanding order books pulled Germany's private sector out of an 11-month slide and returned it to growth in August, while the French manufacturing sector grew for the first time in 15 months. [ID:nLAG003676] [ID:nLAG003678].
"We have seen clearly that the strong PMIs are supporting risk appetite, which has boosted the euro, not just against the dollar but also against sterling," said Michael Klawitter, currency strategist at Dresdner Kleinwort in Frankfurt.
The euro rose 0.5 percent against the dollar to a two-week
high of $1.4334
The single currency also hit a near one-month high against
sterling of 86.78 pence.
STRONG EZ DATA
The strong PMI data lifted optimism that the euro zone may be recovering more quickly than previously thought.
The details of the data revealed that German services PMI rose as high as 54.1, confounding forecasts for a much smaller improvement to 48.7 and taking the index well above the 50 level that marks expansion in the sector. French manufacturing PMI also rose above 50 to 50.2. "The flash PMI surveys for August provided further evidence of a recovery in the euro area," said Neville Hill, economist at Credit Suisse.
"The sharp rises in the German and French composite PMIs suggest that the recovery in those two economies has gathered momentum in the third quarter."
But some analysts warned it is far too early to conclude that the euro zone economy is out of the woods just yet, which may cap the euro's gains.
"Some of the positive data recently has not been evoking big reactions and there are still a lot of risks around the corner," said Neil Mellor, currency strategist at Bank of New York Mellon.
Investors' reluctance to take on too much exposure to risk was reflected in a rise in the Japanese yen -- which typically rises in times of heightened risk aversion -- to hit a one-month high against the dollar.
The dollar fell 0.4 percent against the yen to 93.84 yen
Some traders said sentiment was dented by earlier reports that China's banking regulator -- concerned record lending could lead to a spike in bad loans -- may tighten banks' capital rules. [ID:nSP529534].
Dresdner Kleinwort's Klawitter also noted that the yen may have garnered some support ahead of a national election in Japan on Aug. 30, with the opposition Democratic Party leading Prime Minister Taro Aso's Liberal Democratic Party in newspaper polls. [nPOLJP].
(Reporting by Jessica Mortimer; Editing by Toby Chopra)