* Euro up 0.3 pct at $1.4397 <EUR=>; up 0.7 pct vs yen
* Swiss franc pares gains;, euro at 1.4993 francs <EURCHF=>
* German Ifo index slightly firmer than expected
* Cross yen pairs rebound on short-covering
(Adds quote, updates prices)
By Tamawa Desai
LONDON, Dec 18 (Reuters) - The euro recovered on Friday after steep falls against the dollar and yen, and pared losses against the Swiss franc, which surged earlier in the session in thin trade.
The Swiss franc rose as investors unwound long euro positions in the approach to the year-end, helped by rumours of a coup in Pakistan that were quickly denied and by stop-loss orders which propelled it up. [ID:nLDE5BD0AK]
The euro fell to 1.4910 francs, its weakest level since March when the Swiss National Bank (SNB) intervened to sell francs after announcing steps to fight deflation.
It was last at 1.4993 francs <EURCHF=R>, down 0.1 pct on the day, near the SNB's perceived threshold of 1.50 francs.
"The markets are fairly illiquid, which is exaggerating moves," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ. "Momentum is key, and you don't want to go against momentum right now."
"There may not be much benefit for the SNB to intervene now, given the markets are so illiquid," he added.
But traders said the euro's rebound against the Swiss franc was partly on expectations the SNB would step in to sell its currency.
The markets showed little reaction to the German Ifo institute's sentiment index which rose to 94.7 in December, slightly higher than expectations for 94.5, and up from 93.9 the previous month. [ID:nBEB004418]
"From a historic perspective, the Ifo index is still at a moderate level. In this context, the ECB is not under pressure to shift gears on rates in the forseeable future," said Ulrich Wortberg, economist at Heleba.
Ifo economist Klaus Abberger said the German economy will continue to recover at a moderate pace and euro zone interest rates were unlikely to rise before the second half of 2010.
By 1002 GMT, the euro had risen 0.3 percent to $1.4397 <EUR=> after falling to $1.4304 on Thursday, its lowest since early September. It had struggled the previous day after S&P became the second ratings firm this month to downgrade Greece.
DOLLAR, YEN PRESSURED
The dollar index <.DXY>, a gauge of the greenback's performance against six major currencies, fell 0.2 percent to 77.518, off Thursday's peak of 77.943 which was its highest since early September.
"I get the impression that market players are not wasting time to clean up their positions as we have only a few more days," a hedge fund sales trader for a Japanese bank said.
"Today's move in euro/Swiss, dollar/yen and cross/yen are all part of that last-minute liquidation."
Yen crosses, which fell sharply in the wake of euro/Swiss franc's fall, came off their lows on short-covering.
The euro was up 0.7 on the day at 129.90 yen <EURJPY=R>, sterling was also up 0.6 percent at 146.28 yen <GBPJPY=R> and the Australian dollar rose 0.5 percent <AUDJPY=R>.
The dollar was up 0.4 percent at 90.23 yen <JPY=>.
The yen was mildly pressured as the Bank of Japan kept interest rates steady as expected, but in a surprise move, changed its definition of long-term price stability, saying it would not tolerate zero inflation or falling prices. [ID:nT289621]
BOJ Governor Masaaki Shirakawa said the new definition of long-term price stability did not mean monetary policy would be guided by short-term price moves alone. [ID:nTKU105765] (Additional reporting by Kaori Kaneko in Tokyo)