* 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 paid back less than expected of their crisis loans from the European Central Bank. In commodities, oil prices rose as evidence of improving business morale in Germany helped bolster sentiment after two days of heavy losses. Wall Street rebounded after two days of decline, led by gains in technology stocks after better-than-expected earnings from Hewlett-Packard. Hewlett-Packard shares were up 8.5 percent at $18.55 in early morning 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 more quickly 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. It 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 were faring better in Europe as investors looked to take advantage of the previous session's sharp sell-off. By early morning trade in New York, European shares on the FTSEurofirst 300 were up 0.9 percent after a 1.5 percent drop in the previous session. In the U.S, the Dow Jones industrial average was up 41.09 points, or 0.30 percent, at 13,921.71. The Standard & Poor's 500 Index was up 4.92 points, or 0.33 percent, at 1,507.34. The Nasdaq Composite Index was up 15.59 points, or 0.50 percent, at 3,147.08. MSCI's world share index was up 0.3 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. It was last down 0.1 percent on the day at $1.3178, with market players reporting supporting bids around $1.3150-60. Europe's common 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 elections, 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 Italian vote is not expected until next week. Bob Lynch, chief currency strategist at HSBC in New York said he continues to expect a weaker euro due to a host of 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. The dollar rose 0.4 percent on the day to 93.46 yen, keeping some distance from a 33-month high of 94.47 hit last week. The euro edged up 0.3 percent to 123.18 yen. Some market players said the fact U.S. policymakers had not particularly objected to yen weakness, which makes Japan's exports more competitive relative to those of other countries, meant the downtrend could continue. REBOUND Like equities, commodities enjoyed a rebound from Thursday's big sell-off, which was driven by fears that the U.S. Federal Reserve 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 $113.92 by 10:22 a.m. ET (1522 GMT) U.S. crude was at $92.76, down 10 cents, after hitting a six-week low in the previous session. Earlier in the day Asian shares also saw modest rebounds, though many of the region's major indexes have recorded their steepest weekly falls of the year. The MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.2 percent, though that was a small recovery from the 1.5 percent fall on Thursday, and left the index set for a weekly loss of about 0.8 percent. U.S. Treasuries were little changed with the 10-year notes trading unchanged in price to yield 1.97 percent.
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