* 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.