* German business morale falls short of expectations
* Euro hits near three-week low versus dollar
* Dollar still hovering within sight of 100 yen mark
By Anirban Nag
LONDON, April 24 (Reuters) - The euro rose from a near three-week low against the dollar on Wednesday on hopes Italy can resolve its political gridlock, but gains could be fleeting after weak German data fanned talk of rate cuts.
A survey by Germany's Ifo think-tank showed business morale dropped for a second month in April, fuelling concerns about the health of the euro zone's largest economy.
The survey knocked the euro, already vulnerable after German PMI data on Tuesday showed business activity dropping sharply in April.
Investors focused on the possibility of the European Central Bank cutting its main refinancing rate, which is already at a record low 0.75 percent.
Recent comments by ECB policymakers have stressed falling inflation and poor euro zone growth prospects, suggesting policymakers are leaning towards a further cut at their next meeting on May 2.
The euro dropped to $1.2954, its lowest level since April 5, before paring losses to last trade up 0.2 percent on the day at $1.3015. An Asian central bank and a supra-national investor were cited as buyers.
Traders said the euro was also drawing support from reports that Italian President Giorgio Napolitano had called Enrico Letta, deputy head of the centre-left Democratic Party, to form a new coalition government.
The formation of a government in euro zone's third-largest economy after months of uncertainty would offer relief to investors looking to buy assets in the region.
"But the risk-reward in the euro is to sell it into any rise to $1.3100/50," said Mankash Jain, head of FX and Investment Management at hedge fund Solo Capital. "The data from Germany has been weak, the Ifo was weak and if the ECB were to cut rates next week, the euro would fall."
Carolin Hecht, currency strategist at Commerzbank said there would be support for the euro around $1.2950 and the 200-day moving average at $1.2940, but the currency could slide to $1.28 in the run-up to the ECB meeting.
"Everyone is now really betting on the ECB to come to the stage and cut the key rate," Hecht added.
EURO AT 5-WEEK HIGH VS SWISS FRANC
Despite expectations of a rate cut by the ECB, the euro rose to a five-week high against the Swiss franc on renewed speculation that the Swiss National Bank could raise the floor imposed on the euro/Swiss franc pair to 1.25 francs from 1.20.
The euro rose to 1.2319 francs, its highest since mid-March. It went past a reported options barrier at 1.2300 francs, with traders citing talk of a Swiss bank selling the franc against the dollar.
The euro rose 0.2 percent to 129.51 yen, but well off a more than three-year high of 131.10 yen hit earlier this month. The dollar was steady at 99.50 yen, having pulled back from the day's high of 99.77 yen.
A trader for a Japanese bank in Asia said yen-buying by options players, institutional investors and Japanese exporters blocked the dollar's earlier rise.
Many traders are braced for a test of the 100 yen mark in coming days, although offers were reported around 99.80-85 yen that could limit the dollar's gains in the short term.
The dollar hit a four-year high of 99.95 yen on April 11 after the Bank of Japan unveiled a sweeping monetary stimulus programme.