* Euro jumps after rise in German ZEW index beats forecasts
* Euro hits session high of $1.2988
* German ZEW sentiment index 13.0 in March
* Sweden's central bank cuts 50 bps, says rates to stay low
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By Tamawa Desai
LONDON, April 21 (Reuters) - The euro jumped to a session high against the dollar on Tuesday on a bigger-than-expected improvement in German investor sentiment, after the pair hit a one-month low the previous day.
But the euro's gains were limited as investors remain cautious about the economy in spite of the survey, and of corporate earnings announcements and the health of banks.
The Mannheim-based ZEW economic think tank's monthly poll of economic sentiment rose to 13.0 from -3.5 in March. It was the first time since July 2007 that the headline index was in positive territory, and beat forecasts for a reading of 1.5.
That helped push the euro higher, which had gained somewhat earlier in the global session as traders took profits from the euro's recent slide.
"Today's ZEW index is good news. However, there is no reason to become overly enthusiastic," said Carsten Brzeski, economist at ING Financial Markets.
"Nevertheless, there are some glimmers of hope...The deterioration of the real economy is slowing down and mixed signals from confidence indicators show that at least confidence is trying to find a bottom."
The euro hit a session high of $1.2988. It was last up 0.4 percent on the day at $1.2963 after the euro fell to a one-month low of $1.2888 hit on trading platform EBS on Monday.
The single currency also rose to a session high against the yen at 127.70 yen, up around 0.8 percent on the day That was after the euro hit a low of 126.10 yen on EBS.
The dollar was up 0.3 percent at 98.31 yen, up from a three-week low of 97.66 yen hit on Monday.
The yen crosses and commodities currencies had taken the brunt of the impact from a steep slide in U.S. equities on Monday after Bank of America reported a jump in non-performing assets, underscoring the banking sector's troubles.
The euro will likely remain under pressure by uncertainty over what unconventional policy steps the European Central Bank may adopt next month. It is expected to cut interest rates below their current 1.25 percent.
The market will also focus on banks as players await the outcome of stress tests by U.S. authorities to determine how well lenders would fare if the recession proved deeper and longer than expected. Results are expected on May 4.
"The recent correction will likely continue and we may see euro and cable and Aussie dollar pull lower in the next couple of days," said Ian Stannard, senior foreign exchange strategist at BNP Paribas.
Meanwhile, the Swedish crown rose to around 11.16 per euro from around 11.25 crowns after Sweden's Riksbank cut rates by a smaller-than-expected 50 basis points.
Sweden's central bank slashed its key interest rate to a record low 0.5 percent. The median consensus in a Reuters poll was for a 75 basis point reduction although an equal number of economists had forecast a 50 basis point cut.
The Riksbank said the repo rate was expected to remain at a low level until the beginning of 2011. It also said there was some probability of further cuts and of resorting to "other measures" should the economy deteriorate more than expected.
The Bank of Canada will also announce its rate decision later in the day, where it is expected to hold interest rates at a historic low of 0.5 percent but will unveil a list of possible other steps it could take to stimulate the economy. (Editing by Ruth Pitchford)