* Low ECB loan repayment pushes euro to 6-week low * European shares, commodities rebound after sharp losses * Italian elections at weekend in focus By Marc Jones LONDON, Feb 22 The euro hit a six-week low on Friday after banks paid back less than expected of their crisis loans from the European Central Bank, while European shares recovered some of the previous session's sharp losses as investors went in search of bargains. Wall Street's S&P 500 was also expected to rise when trading resumes, after its worst two-day run since November. Markets have been rattled this week by suggestions the U.S. Federal Reserve could scale back its support quicker than expected and by weak euro zone data that has dashed hopes of an early recovery by the recession-hit region. 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 lower-than-expected repayment shows that banks in the euro zone periphery, and possibly also in the core, still want to hold on to the LTRO funds as market access remains constrained and fears over future market turmoil persist," said Tobias Blattner, economist at Daiwa Securities. The low payback pushed the euro to a six-week low of $1.3157 from around $1.3210 beforehand. It has fallen around 1 percent this week as worries about the bloc's recovery have resurfaced and is down 3.5 percent since the start of the month. In contrast, stock markets rebounded as investors looked to take advantage of Thursday's sharp sell-off. European shares on the FTSEurofirst 300 were up 1.2 percent by 1345 GMT, recouping much of the 1.5 percent drop in the previous session and putting them back on course for a small weekly rise. U.S. stock futures pointed to gains of around 0.5 percent for the S&P 500, although it looked set for its first weekly loss of the year after a two-day 1.9 percent drop. MSCI's world share index was up 0.3 percent. "The markets took a heavy dive earlier this week, but they're showing signs of a partial recovery," said Berkeley Futures associate director Richard Griffiths. "The fact that traders are still buying on the dips shows that they're hoping that the global economic recovery will continue, although it will take time." DEFICITS New forecasts from the European Commission did little to dampen the market mood after they pushed back the euro zone's return to growth to 2014. The 17-nation bloc, which generates nearly a fifth of global output, will shrink 0.3 percent in 2013, they showed, meaning the region will remain in its second recession since 2009 for a year longer than originally expected. Earlier in the day, the German Ifo business climate indicator for February beat all forecasts and the Commission's figures underscored the increasing division between muscular economies such as Germany's and those in the debt-strained parts of the euro zone. Spain will badly miss agreed debt targets, the projections showed, as will France and Portugal. All three countries have already indicated as much and will now hope for more leeway from Brussels as the bloc looks to avoid austerity-induced paralysis. "What has raised some eyebrows is the budget balance figures. For instance, for Spain it is more than a 10 percent deficit for this year, which seems to be at odds with what the government has been saying," said Nick Kounis, head of macro research at ABN Amro in Amsterdam. ITALIAN ELECTIONS Other than the economy, European focus was on the weekend election in Italy. Hope of a strong government emerging from the vote have been shaken in recent weeks as a robust campaign by former Prime Minister Silvio Berlusconi has opened up the three-way race with Mario Monti and centre-left leader Pier Luigi Bersani. While economists fear an unstable outcome could derail Italy's drive to repair its finances, bond markets have shown little hint of a return to serious tensions. Italian 10-year yields were 3 basis points lower at 4.45 percent, well within this year's range around 4.10-4.75 percent. Meanwhile, German Bunds were 10 ticks higher and seen holding firm at least until election results on Monday. 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. The dollar which hit a 5-1/2 month high this week, was down slightly as weak U.S. data on Thursday had helped balance the Fed concerns. "After the Fed, people seemed to have a little less conviction that we are going to see indefinite low dollar rates, which have attracted a lot of interest in commodities, especially precious metals," a Hong Kong trader said. 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 oil futures rose 0.8 percent to $114.40, while U.S. crude was up 0.3 percent at $93.13 a barrel, but both are on course for weekly losses of around 3 percent. Analysts said the Fed's minutes have shifted widely held expectations among investors that world's most important central banks would keep pumping cash into the system to support the economic recovery - a view that has driven a huge rally in all risk asset markets since late last year. 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. In Hong Kong the benchmark Hang Seng Index fell 0.5 percent and finished the week down 2.8 percent, its biggest loss since mid-November last 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.
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