* Low ECB loan repayment pushes euro to 6-week low * U.S., Europe shares, commodities rebound after sharp losses * Italian elections at weekend in focus By Angela Moon NEW YORK, Feb 22 Major stock markets rose on Friday, recovering some of the previous session's sharp losses, but the euro hit a six-week low on news that banks repaid less than expected of their crisis loans from the European Central Bank. Oil prices rose as evidence of improving business morale in Germany helped bolster sentiment after two days of heavy losses. Wall Street also rebounded following two days of decline, led by gains in technology stocks after better-than-expected earnings from Hewlett-Packard. H-P shares jumped 10 percent to $18.83 by midday trade in New York. Risk-associated assets have been rattled this week by suggestions the U.S. Federal Reserve could scale back its monetary support sooner than expected and by weak euro zone data that has dashed hopes of an early recovery by the recession-hit region. The S&P 500 had dropped 1.9 percent over the prior two sessions, its worst two-day drop since early November, putting the benchmark index on pace for its first weekly decline of the year. Still, the index is up nearly 6 percent for the year and managed to hold the 1,500 support level despite the recent declines. In a sign that some euro zone banks may still need support, the ECB said just over 61 billion euros ($81 billion) of the 530 billion it lent at the height of the bloc's crisis last year will be repaid when banks get the first opportunity next week. That was well below the 130 billion euros expected by traders and means there remains more than enough cash in the banking system to keep downward pressure on money market rates. The euro dropped to a six-week low against the dollar. "This means that the confidence is still not there and that's a negative for the euro," said Sebastien Galy, currency strategist at Societe Generale in New York. "I don't think euro zone banks are confident that they can get cheaper loans elsewhere." A report from the European Commission released on Friday that forecast the euro zone economy will contract again in 2013 and caution ahead of an Italian election this weekend also weighed on the euro, which fell for a third straight session. But stocks fared better in Europe as investors looked to take advantage of the previous session's sharp sell-off, though traders cited some caution given weekend elections in Italy. The FTSEurofirst 300 closed up 1.2 percent at 1,165.43, having sunk 1.5 percent on Thursday. The Dow Jones industrial average was up 62.57 points, or 0.45 percent, at 13,943.19. The Standard & Poor's 500 Index was up 6.90 points, or 0.46 percent, at 1,509.32. The Nasdaq Composite Index was up 16.71 points, or 0.53 percent, at 3,148.20. MSCI's world share index was up 0.4 percent. EURO HITS 6-WEEK LOW The euro fell as low as $1.3156, its lowest since Jan. 10, retreating from a session high of $1.3244 touched after a better-than-forecast German Ifo survey suggested a brighter outlook for the euro zone's largest economy. The currency was on pace to close lower for a third straight week. Some strategists said they expected the euro to grind lower ahead of the Italian election, although it should find support around $1.3040, near the Jan. 10 low of $1.3037. Investors were wary about the risk of a fragmented Italian parliament, which could hinder the euro zone's third-largest economy from fighting its longest recession in 20 years. Market participants in general are taking a more defensive position -- betting on the euro's downside -- in case of an adverse outcome in Italy. The result of the vote is not expected until next week. Bob Lynch, chief currency strategist at HSBC in New York, said he expects a weaker euro due to numerous technical factors. "The downward shift in momentum indicators, the break below the July 2012 uptrend, and the further shift in relative yield spreads against the euro suggest to us that the risks remain on the downside in the near-term," said Lynch. The euro and the dollar rose against the yen, although strategists said the Japanese currency's three-month decline was showing signs of losing momentum. Expectations the new Japanese government will take aggressive easing steps in an attempt to revive the economy have helped the yen fall steeply across the board since November. Like equities, commodities rebounded from Thursday's big sell-off, which was driven by fears that the Fed may be edging closer to ending its ultra-loose monetary policy, which has flooded the markets with liquidity. Gold added about 0.3 percent to around $1,575.20 an ounce but is on course for a weekly decline of almost 2 percent, its second week in the red. Brent crude for April rose $1.26 per barrel to a high of $114.79 before easing back to around $114.00. U.S. crude was at $92.90, up 6 cents, after hitting a six-week low in the previous session. In U.S. Treasuries trading, 10-year notes were trading 2/32 higher in price to yield 1.9653 percent, down slightly from 1.97 percent late Thursday.
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