FOREX-Euro wraps up best quarter vs dollar in 8 years

                                
 * Euro retreats from 5-month high vs dollar
                                
 * Euro on track for biggest quarterly gain in 8 years
                                
 * Dollar index hits 8-month low; month-end flows dominate
                                
 * Better-than-expected U.S. data caps USD losses
 (Recasts throughout; adds comments, changes byline)
                                
 By Vivianne Rodrigues
                                
 NEW YORK, Sept 30 (Reuters) - The euro hit a fresh
five-month high against the dollar and was on track for its
best quarterly gains in eight years on Thursday after data
showed euro zone banks are relying less on funds from the
European Central Bank.
                                
 The news reinforced expectations Europe may gradually
remove policy stimulus before the United States and Britain,
helping offset concerns about Ireland's fiscal and banking
problems.
                                
 The yen rose broadly on reported exporter demand for the
currency on the last day of Japan's fiscal half-year. This
sparked talk Japan may step in again to curb yen gains.
                                
 The euro's rally, however, seemed to be running out of
steam in the short-term, analysts said. It reached the 55-week
moving average around $1.3613 but failed to take out the
previous high of $1.3692 hit last April 12.
                                
 "The euro rally has gone a bit too far and it was time to
take profits. So the dollar as a result is benefiting," said
John McCarthy, director of foreign exchange at ING Capital
Markets.
                                
 In early afternoon trading in New York, the euro was little
changed at $1.3618 <EUR=EBS>, after trading as high as $1.3684
earlier.
                                
  As long as the euro holds above $1.3511, the previous 50
percent Fibonacci retracement of the November 2009 peak and
June 2010 low, momentum is likely to remain positive. The
currency is still on track to hit its 200-week moving average
at $1.3916, traders said.
                                
 "The lower level of emergency borrowing combined with the
expiration of previous ECB loans reduces the amount of
liquidity in Europe's banking system, puts upward pressure on
money market rates and signals a gradual normalization in
conditions," said Omer Esiner, chief market analyst at
Commonwealth Foreign Exchange Inc in Washington.
                                
 The dollar recouped some of its losses after a
stronger-than-expected reading of business activity in the U.S.
Midwest, with an index of 60.4, compared with forecasts of 56.
 (For Chicago PMI, click on [ID:nN30285357]; for jobless
claims, click on [ID:nN30285244])
                                
 "This (Chicago PMI) was a solid number and certainly bodes
well for the manufacturing sector. The positive data we've seen
earlier in the day also contributes to the stabilization of the
U.S. currency," said Joe Manimbo, currency trader, Travelex
Global Business Payments in Washington.
                                
 "But despite the good numbers, the reports are not solid
enough to prevent the Fed from adding more stimulus to the
economy."
                                
 OPTIONS BARRIERS
                                
 In a day of heavy month- and quarter-end flows, the euro
see-sawed after news on Ireland disclosing a worst case price
tag of more than 50 billion euros to bail out its troubled
banks. [ID:nLDE68T045]
                                
 The euro pushed through reported options barriers at
$1.3650 and $1.3675 to hit a five-month high of $1.3684 on the
EBS trading platform. Traders said there is another barrier at
$1.3700 and every 25-point interval all the way to $1.38.    
The Irish news was outweighed by data on Thursday showing banks
borrowed 29.4 billion euros of six-day ECB funds, ensuring a
far bigger-than-expected drop in excess liquidity as 225
billion euros of ECB loans expire. That signaled a healthier
outlook for money markets. [ID:nLDE68T13O].
                                
 The euro has risen almost 12 percent versus the dollar over
the course of this quarter, its best quarterly performance
since June 2002. On the month, the euro was up about 7.5
percent, its best monthly gains since December 2008.
                                
 Euro gains helped push the dollar index to an eight-month
low against a basket of currencies.
                                
 The dollar index <.DXY> fell earlier to an eight-month low
of 78.414 before rebounding to 78.807, little changed on the
day. It has fallen about 8 percent over the quarter, leaving it
on track for its biggest quarterly fall since the second
quarter of 2002.
                                
 Against the yen, the dollar fell 0.3 percent to 83.46 yen
<JPY=EBS>, not far from a 15-year low of 82.87 hit on trading
platform EBS earlier this month before Japan intervened and
heightening worries they may step in again.
                                
 The Ministry of Finance said Japanese authorities sold
2.1249 trillion yen ($25.37 billion) in currency intervention
in the latest month to Sept. 28. [ID:nTOE68T08I]
                                
 (Reporting by Vivianne Rodrigues; Additional reporting by
Gertrude Chavez-Dreyfuss and Wanfeng Zhou; Editing by Chizu
Nomiyama)