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* Banks repay more ECB loans than predicted
* German Ifo raises hopes of euro zone turnaround
* Euro hits 11-month peak, European shares gain 0.1 pct
* Positive global growth outlook supports oil, copper
By Richard Hubbard
LONDON, Jan 25 (Reuters) - The euro hit an 11-month high and shares rose on Friday on signs that Europe's financial system is returning to health and the outlook is brightening for Germany, the continent's biggest economy
In the United States mostly solid corporate earnings reports have also set the stage for the S&P 500 index to extend its best winning streak in over six years and close in on its highest level since the financial crisis began.
Sentiment across riskier asset markets rose when the European Central Bank said euro zone banks would repay 137 billion euros in emergency loans early.
By taking back the three-year loans after only one year, the ECB has become the first major central bank to start moving away from unconventional monetary policy measures to tackle the crisis. By contrast, the U.S. Federal Reserve and Bank of Japan are buying bonds to stimulate economic growth.
Altogether, the ECB lent about one trillion euros in late 2011 and early last year to avoid a credit crunch. The scale of the repayment, which beat the average estimate of around 100 billion euros in a Reuters poll, sent the euro higher, pushed German government bond prices down and boosted bank stocks across the euro zone.
"This is more than we had expected and underlines the material improvement in funding conditions for most European banks in the past 12 months," said Michael Symonds, a credit analyst at Daiwa Capital Markets.
The euro hit $1.3461, up 0.5 percent and its highest level since February 2012, to extend the gains which followed the release of data showing the German economy gathering speed again after contracting late last year.
German bond futures fell 40 ticks while two-year Bund yields extended an earlier rise to be up seven basis points at 0.24 percent.
The main Euro STOXX index of euro zone banking shares was up 1.4 percent and back to levels seen in mid-2011.
Before the ECB announcement European equity markets - and German shares in particular - had gained when the Ifo think tank said its business climate index rose in January to its highest level since June 2012.
The German Ifo index followed another business survey on Thursday which suggested Europe's largest economy was set to grow at its fastest pace in a year, although that data also showed France may be heading back into recession.
"Germany is roaring back to growth in the new year," said Berenberg Bank economist Christian Schulz.
Germany's DAX index, home to bellwethers such as Siemens and BMW, hit a five-year high after the Ifo number. It needs to rise only 4 percent more to regain the 2007 peak before the global financial crisis.
UK TRIPLE DIP?
The news was less impressive in Britain, which reported that its economy contracted in the fourth quarter and could be heading for its third recession in four years.
Gross domestic product fell by a greater than expected 0.3 percent quarter-on-quarter in the final three months of 2012, meaning the economy did not grow at all last year.
"The UK economy is bouncing along the bottom in the weakest recovery in living memory," Trevor Greetham, Director of Asset Allocation at Fidelity Worldwide Investment, said.
Sterling fell to its lowest in 13-1/2 months against the euro at 85.29 pence and hit a five-month low against the dollar at $1.5745 after the data, though Britain's FTSE 100 stock index barely reacted.
World shares were up about 2 percent overall and at 20-month highs as the German data added to manufacturing reports from the United States and China which showed factory activity at its best levels in two years.
However, these gains were tempered by Apple's disappointing quarterly results this week which have cast a pall over tech-heavy markets across Asia.
MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.4 percent on Friday, for a weekly drop of about 1 percent, its biggest loss in two months.
But the improved outlook for fuel demand implied by the stronger data sent Brent crude towards $114 a barrel and on track to post a second week of gains. U.S. crude rose 30 cents to $96.25.
Copper also edged up to near two-week highs on the robust economic data, although prices were set to close the week little changed. Three-month copper on the London Metal Exchange rose by 0.2 percent to $8,114 a tonne.