* Euro recovers as CPI rise fuels rate hike expectations
* Egypt unrest worries subside but traders cautious
* Pound hits 10-week high as BoE rate hike view simmers
* Aussie eyes RBA's first policy meeting after floods
By Hideyuki Sano
TOKYO, Feb 1 (Reuters) - The euro crept back near a two-month high on Tuesday after a jump in euro zone inflation fuelled expectations of a rate hike and as worries about unrest in Egypt abated slightly.
Surprisingly strong data on factory activity in the U.S. Midwest may also have boosted investor risk appetite, although traders said the market could remain volatile given that uncertainty remains in the Middle East.
The data fanned hopes that more important economic numbers due later this week, such as the manufacturing survey later on Tuesday and Friday's payroll data, could solidify hopes for a stronger recovery.
"I think the market is now generally hoping that payroll data will be pretty strong," said a trader at a Japanese bank.
The euro rose as high as $1.3740 on trading platform EBS on Monday, a whisker from last week's two-month peak of $1.3760. It last traded at $1.3718, up 0.2 percent on the day.
Some said the euro could renew a march towards $1.40 in the weeks ahead, provided the trouble in Egypt does not spread to other countries.
The euro also kept the gains it made on Monday against the Swiss franc, fetching 1.2930 franc, compared to a two-week low of 1.2780 franc hit earlier on Monday.
Consumer prices in the 17 countries using the euro rose 2.4 percent year-on-year, holding above the ECB's target of just below 2 percent for the second month.
The data helped lift the three-month Euribor rate to 1.074 percent, its highest since July 2009.
European Central Bank President Jean-Claude Trichet has already warned about price pressures and is to speak on Thursday after the ECB's monthly meeting.
Easing worries about the euro zone sovereign debt crisis and growing expectations that the ECB could hike rates sooner than the Federal Reserve have supported the euro in recent weeks.
Reports over the weekend that the European Union was working on a solution to reduce Greece's debt burden also helped boost the euro, traders said.
The single currency's rebound has also helped the British pound, which has additionally been boosted by expectations of a rate hike by the Bank of England.
BoE policymaker Martin Weale, who surprised the market by voting for a rate hike last month, said that a small rise in interest rates would now cost less in the long run than higher ingrained inflation.
Sterling rose 0.3 percent on Tuesday, extending its 1 percent gains on Monday, to hit a 10-week high of $1.6073 The dollar was moving little against the Japanese yen, trading at 82.08 yen, off a four-week low of 81.77 yen marked on Monday.
The index of the dollar against a basket of major currencies slid to 77.603, near an 11-week low of 77.537 touched on Monday.
As risk appetite came back, the Australian dollar was firm at $0.9967, keeping the 0.3 percent gain it made on Monday, ahead of the Reserve Bank of Australia's policy statement expected at around 0330 GMT.
Australia's central bank is certain to leave interest rates unchanged and to maintain a wait-and-see stance as policymakers assess the full economic impact of devastating floods in Queensland.
"The market will be interested to know how the RBA assesses the impact of the flood," said Teppei Ino, an analyst at Bank of Tokyo-Mitsubishi UFJ. (Reporting by Hideyuki Sano; Editing by Joseph Radford)