FOREX NEWS - Euro rises as China comments outweigh soft GDP

* Euro, riskier currencies buoyed by China comments

* Contraction in euro zone GDP could weigh in medium term

* Greek bailout uncertainty persists but markets optimistic

* Dollar hits 3-1/2 mth high vs yen after BOJ easing steps

By Nia Williams

LONDON, Feb 15 (Reuters) - The euro rose against the dollar on Wednesday after China said it would continue investing in euro zone debt, offsetting a contraction in quarterly GDP that added to concerns the currency bloc could slip into recession later in the year.

Euro zone output shrank by 0.3 percent in the fourth quarter of 2011, as forecast, and prompted little reaction in the euro. Analysts said weak European growth could weigh on the euro against the dollar more in the medium term as the U.S. economy shows signs of picking up.

The euro was last up 0.4 percent at $1.3172, retreating from a session high of $1.3191 and well off the Feb. 9 peak of $1.3322. CitiFX Wire said in a note that its traders were looking to buy on dips rather than chase the euro higher.

"The China comments have helped positive sentiment today and GDP figures were pretty much as expected so there's no huge surprise there was no massive market movement," said Nick Beecroft, senior markets consultant at Saxo Bank.

"But they are part of what will become an important story in the second quarter as reality starts to kick in terms of collapsing growth in the euro zone, which in itself hampers efforts to improve government deficits."

The Chinese central bank governor said China remains confident in the euro, helping buoy sentiment overnight, although further short-term euro gains looked dependent on whether Greek leaders signed a commitment to implement tough austerity measures.

The cancellation of Wednesday's meeting of euro zone finance ministers unnerved some investors worried about a disruption to a Greek bailout deal, but Greek conservative party leader Antonis Samaras was expected to sign a commitment to the strict austerity measures required.

Signs Greece was edging closer to a political consensus also helped support perceived riskier currencies against the safe-haven dollar and boosted European equity markets.

"This market is trading very much on risk sentiment. The China comments were good news for the European debt situation and thereby a positive for the euro," said Niels Christensen, FX strategist at Nordea.

"Regarding Greece, the general opinion is that some way or another they will reach an agreement and Greece will get its financial aid at some point. The market may be a little bit too complacent if it suddenly falls apart."

YEN WEAKNESS

The dollar outperformed the yen, hitting a 3 1/2-month high after monetary easing steps from the Bank of Japan on Tuesday triggered stop-loss buying of the greenback. It was last trading flat at 78.49 yen.

As well as the BOJ's expansion of its asset-buying scheme, Japan's shrinking current account surplus, its trade deficit and signs of economic recovery in the United States all weighed on the yen.

Dollar/yen stop loss buying by short-term accounts and Japanese importers along with an improving technical outlook suggested the dollar may extend its gains in the near term.

Traders said an obvious resistance level was the post-intervention high of 79.55 yen.

In another bullish sign, the dollar held well above strong support at its 200-day moving average, currently 78.04 yen, having closed above it for the first time since mid-April.

"There's very little upside pressure on the yen right now. Of course the euro zone can always suddenly change the landscape, but the bottom line for now is that the yen is going down," said Koji Fukaya, Credit Suisse chief currency analyst.

With the greenback under pressure against most currencies other than the yen, the dollar index fell 0.4 percent to 79.272. The risk-correlated Australian dollar rose 0.6 percent to US$1.0747.