* Trade war optimism fires up risk-taking
* Euro nudges back above $1.13, still near three-month lows
* Quiet start to the week with U.S. markets closed
* Graphic: World FX rates in 2019
By Tommy Wilkes
LONDON, Feb 18 (Reuters) - The euro clawed itself back over the
$1.13 mark and riskier currencies like the Australian dollar rose on
Monday as optimism over a breakthrough in U.S.-China trade war talks
boosted investor sentiment at the start of the week.
The euro has been stuck in a tight trading range since November as
broadening weakness in the euro zone economy has offset a sharp
dialing back in expectations for interest rate rises by the United
States Federal Reserve this year.
But after hitting a three-month low on Friday, the euro has
bounced back slightly - helped by the positive mood around risk assets
as investors hoped for an end to the U.S.-China trade conflict after
both sides reported progress in talks.
"Generally the mood is still quite positive on the outlook
for trade," said Adam Cole, a currencies analyst at RBC Capital
Markets, adding that he thought the risk-on mood would continue.
"If anything we would be running with it. You have a
background of quite decent growth and a Fed that is putting rates on hold."
However, he said a better way to play the Fed pause story was in
dollar/yen, which he sees rising to 120 yen per dollar
by end-2019 from current levels of 110.58.
The euro ticked 0.1 percent higher to $1.1303 , while the dollar
index - which measures the greenback against a basket of rivals -
slipped 0.1 percent to 96.848 in a quiet session with U.S. markets
closed for a holiday on Monday.
Despite Monday's cautious gains, traders are betting on a weaker
euro in the coming months as they expect the European Central Bank to
keep its monetary policy accommodative due to low growth in the common
currency area, tepid inflation and political uncertainties.
Commerzbank analysts said the euro remained vulnerable to any
flare up in the U.S.-European trade dispute too.
"There would be very little to report on the euro positive
side if this conflict were to escalate. The smallest economic
disruptions would no doubt be damaging for the euro in the light of
the fragile state of the euro zone economy," they wrote.
The Australian dollar, seen as a barometer of risk sentment, rose
0.1 percent to $0.7147 .
Sterling gained 0.1 percent to $1.2907 as traders awaited the
next Brexit-related developments.
(Additional reporting by Vatsal Srivastava in SINGAPORE; Editing by