By Saqib Iqbal Ahmed
NEW YORK (Reuters) - The euro rose to a 2-1/2 week high against the U.S. dollar on Tuesday and was on track for its largest percentage gain in more than four months, after data showed Germany's economy shifted into a higher gear in the third quarter.
The euro was up 1.11 percent at $1.1794, set for its largest one-day percentage gain against the greenback since June 27.
"Most of what appears to have driven the euro's strength was the solid German data earlier this morning," said Eric Viloria, currency strategist at Wells Fargo Securities in New York.
Germany's seasonally adjusted gross domestic product (GDP) rose by 0.8 percent on the quarter, compared with a Reuters poll forecast of 0.6 percent.
In a further positive sign for Europe's biggest economy, the ZEW institute said investor morale improved in November and prospects for the economy remained "encouragingly positive."
Germany helped the euro zone economy expand by 2.5 percent in the September quarter compared with the same period in 2016, and more than the United States, data showed on Tuesday.
Viloria also attributed part of the strength of the move in the single currency to a break above a key technical level - its 100-day simple moving average of $1.1733.
Lennon Sweeting, chief market strategist at XE in Toronto pointed to the dollar's recent sensitivity to any positive news out of Europe as contributing to the euro's strength.
"Any time we have seen stronger or as expected news out of Europe I think it leaves the dollar in a very vulnerable position on that particular cross," he said.
The dollar index <.DXY>, which tracks the greenback against six major currencies, was down 0.7 percent at 93.828. The index was little changed after data showed U.S. producer prices rose more than expected in October.
The Fed is expected to raise interest rates next month. Investors will now turn their focus to U.S. consumer prices data due on Wednesday.
The euro was up 0.74 percent against sterling. The British pound weakened against the common currency after UK inflation data came in slightly lower than expected, weakening the case for further interest rate rises.
Sterling has been volatile in recent sessions against a backdrop of political turmoil as British lawmakers this week debate legislation underpinning the government's plan to leave the European Union.
New Zealand's commodity-linked currency, which is sensitive to signals on Chinese demand, slipped after disappointing data on Chinese retail sales and industrial production.
(Reporting by Saqib Iqbal Ahmed)