By Marc Jones

LONDON, Feb 19 (Reuters) - European shares saw their

strongest gains in a week on Tuesday after a pick-up in German

economic sentiment data bolstered hopes the region's biggest

economy would rebound quickly from its recent bout of weakness.

Following last week's GDP figures showing that the euro zone

saw a weaker end to 2012 than expected, Germany's ZEW survey of

investors and analysts brightened the mood as it comfortably

beat expectations to hit its highest level since April 2010.

'Financial market experts have made their peace with the

weak fourth quarter of 2012,' said ZEW president Wolfgang Franz.

'In their opinion the German economy faces less of a headwind

from the euro crisis than throughout the last months.'

European stock markets, which have lost around 1.5 percent

since the end of January, extended early morning gains after the

figures were released to put them on track for their biggest

gains in a week.

The FTSEurofirst 300 had added 0.7 percent by 1120

GMT, led by 1 and 0.8 percent gains on Paris's CAC-40

and Frankfurt's DAX and 0.3 percent rises in London and Madrid.

'Even if the real economy only lives up to half the

expectations recently created by soft indicators, any fears of a

technical recession (in Germany) should turn out to have been

unjustified,' said ING economist Carsten Brzeski.

The euro also rose and German government bonds turned

negative after the figures, though both moves proved to be

brief, with the euro quickly back to $1.3340 and

benchmark Bunds back in positive territory at 142.80.

European Central Bank President Mario Draghi's reiteration

on Monday that the bank would continue to monitor the euro's

recent strength kept downward pressure on the currency, as some

took the comments as a hint that a rate cut could be on the

cards.

Underscoring the drag Europe's economic sluggishness is

creating, new figures showed car firms had their weakest January

since the records of the Association of European Carmakers began

in 1990, with sales dropping 8.5 percent.

'What most people are now waiting for is what the ECB

meeting brings next month and whether we get a rate cut,' said

Tobias Blattner at Daiwa Securities in London.

YEN FIRMS

Elsewhere in the currency market, the yen rose after

Japanese ministers played down talk of foreign-bond buying by

the country's central bank, and sterling, another

currency in the spotlight, edged away from a seven-month low.

The yen has dropped 20 percent against the dollar since

mid-November, sparking talk of a 'currency war', though Japan's

expansive policies, which have driven the fall, escaped direct

criticism from G20 policymakers last week.

Finance Minister Taro Aso told a news conference that he was

not considering foreign bond purchases as a part of monetary

easing, while Economy Minister Akira Amari said Prime Minister

Shinzo Abe's comments to that effect on Monday simply referred

to policy options countries have in general.

Their comments sent the dollar down to 93.50 yen. The

euro eased 0.5 percent to 124.74 yen, well below its

peak since April 2010 of 127.71 yen touched on Feb. 6.

The pound rose 0.1 percent to $1.5482, inching up

from Monday's low of $1.5438. But with Bank of England minutes

due on Wednesday, the recovery looked vulnerable to any further

suggestion policymakers would like it weaker.

CONSOLIDATION MODE

MSCI's world equity index was slightly

higher at midday, though markets have been falling for two weeks

since a big run-up in January.

After a day off, U.S. stock index futures pointed to a

higher open on Wall Street, with futures for the S&P 500

up 0.1 percent, Dow Jones futures up 0.1 percent and

Nasdaq 100 futures up 0.2 percent.

The gradual improvement in the global economic environment

has supported commodities, though concerns about Italy's

election this weekend and talks in Washington over a package of

budget cuts set to kick in on March 1 have helped limit gains.

Oil prices were little changed at $117.46 a barrel

by midday as investors awaited the return of U.S.-based traders

from a public holiday and the release of U.S. oil inventory data

on Wednesday and Thursday.

Platinum prices, meanwhile, rose to near $1,700 an ounce,

closing back in on the $1,740 high it hit earlier this month,

after Anglo American Platinum shut all its operations

in South Africa after workers stayed away following violence at

one of the mines on Monday.

Gold rose for a second straight session when traders in

China, returning from a week-long break, bought up the precious

metal, having seen prices drop 3 percent in their absence.

Spot gold edged up 0.2 percent to $1,612.56 an ounce,

just above the six-month low of $1,598.04 hit late last week.

(Additional reporting by Richard Hubbard; Editing by Will

Waterman)

((marc.jones@thomsonreuters.com)(+44)(0)(207 542 9033)(Reuters

Messaging: marc.jones.thomsonreuters.com@reuters.net))

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