(Updates with reaction to euro zone data)
* Euro extends gains after euro zone lending survey
* Canadian dollar recovers after early post-election losses
* Dollar index down 0.3 percent
By Patrick Graham
LONDON, Oct 20 (Reuters) - The euro rose 0.5 percent against the dollar on Tuesday, helped by solid data and a change in the mood music from European Central Bank policymakers before Thursday’s meeting, beating back market bets on further monetary easing.
Quarterly lending data from the ECB showed euro zone banks had loosened their lending standards more than expected over the last few months despite the recent global market volatility. That lessened the need for the ECB to ramp up its 1 trillion euro asset purchase programme, this week at least.
Separately, current account data from the euro zone showed portfolio inflows continued at a brisk pace, a factor that has been supporting the euro in recent months.
“This latest release (of the lending survey) should give the ECB’s Governing Council a little more breathing space as it continues to assess the broader recovery picture,” said Timo del Carpio, an economist at RBC Capital Markets.
The euro was up 0.5 percent at $1.1385, recovering from a 10-day low struck on Monday. It had started to edge up after ECB governing council member Christian Noyer said late on Monday the European Central Bank’s quantitative easing programme was well calibrated and did not need to be adjusted, following similar words from Austrian central bank chief Ewald Nowotny.
Nowotny had pointed to the need to look at further ways to stimulate a still struggling euro zone economy, and major banks including Barclays and Goldman Sachs started this week by calling for the euro to weaken into Thursday’s meeting.
“The Noyer comments are important,” said a senior trader at one international bank in London.
“It does seem as if they’re trying to back the market away from thinking there’s going to be another easing announcement. The market is still short, and it will probably need a push up to $1.15 to burn those guys out.”
The Canadian dollar, a big loser on Monday ahead of election results that gave a shock victory to Liberal leader Justin Trudeau over Prime Minister Stephen Harper’s Conservatives, was back in positive territory in European trade.
The senior trader said the market had judged any selling on concerns that Trudeau’s centre-left was promising to overspend was overdone, and indeed that anything that gets the Canadian economy going could be seen positively.
“I‘m not one of these believers in selling a currency just because a left-leaning government has come in,” said the trader.
“At this stage, putting a bit more into the country fiscally may not be the worst idea. I‘m not in the (Canadian) dollar at the moment but for me, if anything this morning it’s a buy.” (Additional reporting by Anirban Nag; Editing by Mark Trevelyan)