FOREX -Aussie sinks after low inflation, German PMI helps euro

* Aussie falls on lower-than-expected CPI (Other OTC: CPICQ - news) data

* Limited reaction to China HSBC flash manufacturing PMI

* Euro inches higher after German flash PMI (Updates prices, adds more comment)

By Patrick Graham

LONDON, April 23 (Reuters) - The Australian dollar fell almost one percent on Wednesday after a report showed consumer prices rose less than expected last quarter, reducing the chances of interest rates will rise this year.

Among the big three currencies, the U.S. dollar slipped against the euro and yen. Its value against a basket of currencies fell to its lowest in a week.

The Aussie has been gaining steadily against the other major currencies since a turn in the rhetoric of its central bank. The shift came in late January, as the domestic economy improved and a rout in emerging markets reached a peak.

That put the currency way above the low to mid-80s against the dollar officials had previously talked. The suspicion is a slackening of price pressures may at least give currency bulls some pause for thought.

"The weak CPI number does make it easy for the Reserve Bank to change its tone again and that certainly seems to be what markets are thinking this morning," said Simon Derrick, head of currency research at Bank of New York Mellon in London.

The currency tumbled 0.9 percent to $0.9275, pulling further away from a five-month high of $0.9461 set earlier in April.

Australia's growth prospects, at the heart of the central bank's efforts to talk the currency down last year, have improved, while concerns over China have settled somewhat. That was underscored by a PMI survey on Wednesday that was still broadly weak but in line with forecasts.

Derrick said the Aussie appeared to have benefited since January from a re-allotment of central bank reserves that filtered down to other majors.

"There was definitely a substantial element of profit-taking to what has happened since January," said Kenneth Dickson, investment director with Standard Life Investments in Edinburgh.

"We still think the change in the growth prospects of China and others will lead to relative weakness of commodity currencies like the Aussie and Canadian dollar over the next couple of years."

EURO UP

A jump in the first estimate of a monthly index of sentiment among purchasing managers in Germany helped the euro gain in morning trade in Europe. The yen also gained 0.3 percent against the dollar to 102.25 yen. Some dealers said worries over Ukraine had helped push it past some technical resistance.

The single currency has been hamstrung by the possibility of more monetary stimulus from the European Central Bank, but the euro gained more than 0.2 percent to $1.3836.

Standard Life (LSE: SL.L - news) 's Dickson was sceptical of the speculation in the market that the ECB could move swiftly to ease policy further next week.

"We think the ECB believe that the current low inflation is temporary and that it will pick up along with growth," he said. "They do not believe that Europe is heading for the sort of deflationary cycle that Japan saw."

Still, ECB policymakers are talking about the dangers of any further gains for the euro. Its president, Mario Draghi, has made clear the euro's strength is a possible trigger for the bank to ease monetary policy. He is scheduled to give a speech in Amsterdam on Thursday.

"There has been some jumping around this morning but we are still deep in the recent ranges," said one dealer in London. "The market does not want to push the euro above $1.40." (Additional reporting by Ian Chua in Sydney; Editing by Larry King)