FOREX-Euro slips but outlook more positive than dollar's

* Euro falls from near 2-year high after soft Ifo

* Still on course for gains against a weak dollar

* Chart resistance for euro seen at $1.3833

By Gertrude Chavez-Dreyfuss

NEW YORK, Oct (KOSDAQ: 039200.KQ - news) 25 (Reuters) - The euro dropped from a near

two year-high against the dollar to trade flat on Friday after a

survey showing German business morale unexpectedly fell for the

first time in six months.

That data followed sub-forecast euro zone private sector

activity surveys on Thursday, suggesting that recovery in the

euro zone has stalled. The German business sentiment or Ifo data

has sparked concern about the impact of a stronger euro on the

region's exporters.

The euro's fall was not dramatic and it stayed not far from

a near two-year high touched earlier against a weak dollar. Many

analysts say the euro can rise towards $1.40 as investors seek

alternatives to a dollar hobbled by expectations the Federal

Reserve will maintain its current level of monetary stimulus.

"Traders continue to make the euro their favorite

anti-dollar trade in light of expectations the Fed will

continue its QE (quantitative easing) program well into the

start of next year," said Boris Schlossberg, managing director

of FX strategy at BK Asset Management in New York.

In contrast, Schlossberg noted that market participants do

not expect any change in the European Central Bank's monetary

policy despite recent soft euro zone data. That should keep the

euro well-bid, at least against the dollar, he added.

In early New York trading, the euro fell 0.1 percent

to $1.3795, below an earlier high of $1.3833, its strongest

level since November 2011.

Technical analysts said the euro faced stiff resistance at

Friday's $1.3833 peak - the 61.8 percent retracement of the

currency's fall between May 2011 and July 2012.

"The euro is due for a short-term correction and could drop

towards $1.3720," said Hans Redeker, head of global foreign

exchange strategy at Morgan Stanley (Xetra: 885836 - news) . "But by the first week of

December it could be as high as $1.42."

He expected the euro to be one of the main beneficiaries of

a weaker dollar, and as euro zone banks sell assets to foreign

investors to shrink their balance sheets in preparation for the

ECB's asset quality review.

Some euro zone officials, meanwhile, have shown no concern

about a strong euro. ECB Executive Board member Joerg Asmussen

was quoted on Friday saying the ECB is not concerned about the

level of the euro, which some traders may see as a green light

to continue buying.

The dollar edged up 0.1 percent against a currency basket to

79.252, off an earlier near nine-month low of 78.998.

Economists estimate the 16-day government shutdown shaved as

much as 0.6 percentage point off the annualized fourth-quarter

gross domestic product, through reduced government output and

damage to both consumer and business confidence.

However, some analysts said the euro could also be

vulnerable to signs of the euro zone's tentative recovery losing

steam, especially with a strong euro seen hurting the region's

exporters. The euro's trade-weighted index at a

two-year high.

The dollar held steady at 97.32 yen, off a two-week

low of 96.94 yen, but still below its 200-day moving average, a

key chart level, at 97.34 yen, suggesting room for more falls.