FOREX-Euro up 1 pct against weak dollar, German IFO survey helps

* German Ifo survey beats expectations

* July 28-29 Fed meeting eyed as dollar sags

* Impact from weaker commodities also in focus (Updates with German Ifo details, quotes)

By Anirban Nag

LONDON, July 27 (Reuters) - The euro hit a two-week high against a subdued dollar on Monday, after Germany's Ifo survey for July beat forecasts and painted an upbeat picture of Europe's largest economy.

The dollar fell broadly, after a drop in U.S. shares and bond yields dimmed its allure, with markets focused on this week's Federal Reserve policy meeting. It fell 0.3 percent against the safe-haven yen with an 8-percent drop in Chinese stocks affecting global risk sentiment, traders said.

The euro rose 1.2 percent to $1.1113, from about $1.1084 before the Ifo survey was released. The Munich-based Ifo institute's business climate index, based on a monthly survey of some 7,000 firms, rose to 108.0 from a revised 107.5 in June. That beat the Reuters consensus for a drop to 107.2 and was at levels consistent with a positive pace of growth.

Analysts said that would support the European Central Bank's assessment that the outlook has not changed much over the past couple of months, despite the Greek crisis. Still, many suspect the ECB is becoming more concerned over weaker commodity prices, which are likely to depress eurozone inflation expectations.

"A risk-off sentiment is prevailing which is putting popular consensus trades under pressure. As a result we are seeing a short squeeze in the euro/dollar and euro/sterling," Nomura currency strategist, Yujiro Goto, said.

"Any positive impact from Ifo on the euro will be brief. Over the medium term we expect the dollar to gain the upper hand."

The euro has lost as much as 5 percent against the dollar since mid-June on Greek debt worries and the divergence of U.S. and European monetary policies, but a technical correction to the dollar's rally gave the euro some respite last week.

The market will watch the July 28-29 Fed meeting to see if policymakers provide clues for the timing of a rate "lift-off". Steadily rising expectations the Fed could begin hiking rates as early as September have been a major factor behind the dollar's gains over the past month.

Aside from the Fed, the focus was on commodity prices and their potential impact. The more obvious impact from lower prices has been felt by currencies of exporters such as Canada, Australia and Norway. But commodity-importer currencies such as the yen were also expected to feel the effect.

"Falling commodity prices have added to global growth concerns, contributing to falling risk appetite," Morgan Stanley (Xetra: 885836 - news) analysts wrote in a note.

As a result, traditional safe-haven currencies like the yen are likely to be supported, traders said.

U.S. crude traded near four-month lows on Monday, dogged by concerns over oversupply and potentially weaker demand from major consumers, including China. (Editing by Louise Ireland)