* Euro recovers from low of $1.2814, German data helps * But common currency vulnerable to risk of contagion * Aussie recovers from 5-month low vs dollar By Anirban Nag LONDON, May 15 (Reuters) - The euro inched up from a four-month low on Tuesday after German economic growth beat expectations, although gains could prove fleeting as a political stalemate in Greece stoked fears it may renege on bailout pledges and exit the currency bloc. European powerhouse Germany's economy roared ahead in the first quarter at a robust clip of 0.5 percent and shaking off any fears of a recession. Growth in France though flatlined, all of which meant the euro zone overall was still mired in a recession and built pressure on the European Central Bank to loosen monetary policy in coming months. That is likely to see bears take a stronger grip of the euro. Also, concerns about slowing Chinese and global growth are likely to keep investors away from higher-yielding currencies as they prefer the safe-haven dollar and yen. Earlier, the Australian dollar flirted with a five-month low against the U.S. currency before paring losses. "The better-than-expected German numbers have offered the euro some support but it remains vulnerable to headlines," said Jane Foley, senior currency strategist at Rabobank. "It serves as a reminder to investors why the euro has been resilient to downside risks. But the prospects for the ECB to step in over the coming months to address not only the recession but contagion fears are rising." The euro was 0.3 percent higher at $1.2865, recovering from a four-month low of $1.2814 struck earlier in the day. It found some support at $1.2827, the 76.4 percent retracement of its rally earlier this year from $1.2624 to $1.3486. A clear break of that retracement level could open the way for a test of the January low of $1.2624, though some analysts said the euro could enjoy some rebound in the short term, having fallen more than three percent so far this month. "The euro is probably oversold in the very near-term below $1.28," said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ, adding the charts suggested a recovery in the near term. Any bounce in the euro could run out of steam above $1.2880-$1.2900 with peripheral bond yields still at elevated levels. That highlighted the risk of contagion from the Greek deadlock spreading to other euro zone countries. Greek Party leaders are expected to convene at 1100 GMT but there is little hope President Karolos Papoulias's proposal to form a technocrat government would end the stalemate, making a new election the most likely outcome. Many market players think a fresh election will make it more likely for Athens to ditch its bailout pledges and hence the euro, even though euro zone finance ministers dismissed talk of Greece's exit as "propaganda and nonsense". GERMAN ZEW SURVEY The euro will also take direction from a German ZEW survey later in the day. While a stronger than expected survey could lift the euro, a weak reading could see investors step up selling of the common currency. The dollar index was holding near a four-month high of 80.739, having made solid progress in the past few sessions on safe-haven flows. While the dollar has benefited from the euro zone's woes, its gains have been curbed by speculation the U.S. Federal Reserve may take additional easing steps should the economy deteriorate. Even though not many market participants expect the Fed to announce fresh easing steps next month, U.S. retail sales and consumer inflation numbers due later in the day are in focus because they could change that expectation. Against the yen, the dollar moved little at 79.88 yen , above a 2-1/2-month low of 79.428 yen hit last week, with major support seen at 79.14, a 61.8 percent retracement of its rally from February to March. The Australian dollar briefly fell to a five-month low of $0.9945, after the latest Reserve Bank of Australia's minutes showed concerns about a cooling in growth and inflation were behind its unexpected 50 basis point rate cut in May. Apart from political turmoil in Europe, the Aussie has been pressured by concerns over slowing growth in China and other emerging economies, which have been the main driver of global growth. It last stood at $1.0000, up 0.4 percent on the day.

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