* Dollar index hits new 8-month high on oil price slide
* Euro, cable sag on EU threat to postpone Russia talks
* RBA cuts rates by 25 basis points to 7 percent as expected
* Aussie falls as RBA leaves door open for more rate cuts
By Shinichi Saoshiro
TOKYO, Sept 2 (Reuters) - The dollar hit an eight-month high
against a basket of major currencies on Tuesday, getting a boost
from a sharp drop in oil prices on expectations that Hurricane
Gustav's damage to U.S. energy facilities may be less than
feared.
Sterling and the euro fell further after European Union
leaders agreed on Monday to postpone talks on a new EU-Russia
partnership until Moscow withdraws its troops to pre-conflict
positions in Georgia, traders said. []
The tensions with Russia have compounded a slide in European
currencies as the spreading global economic slowdown has
prompted investors to unwind bets that major economies would
withstand the U.S. downturn and global credit crunch.
"EU vs Russia political tensions are adding to the weakness
of European currencies," said Shuichi Kanehira, a senior trader
at Mizuho Corporate Bank.
A weekend comment by Britain's finance minister that
economic challenges are the greatest in 60 years -- with some
media reporting him as saying the British economy was about to
go into its worst downturn since World War 2 -- sparked a
sell-off in the pound, driving it to a two-year low against the
dollar and a all-time low against the euro.
The Australian dollar rose briefly after the nation's
central bank cut its benchmark interest rate by 25 basis points
to 7.0 percent on Tuesday, as widely expected. It was the first
easing in seven years for the Australian central bank as it
attempts to offset a globally driven tightening in financial
conditions. []
Traders initially covered Aussie short positions as the
Reserve Bank of Australia's post-meeting statement was seen as
less dovish than expected. But buying of the Aussie soon ran out
of steam as the RBA still left the door open for more interest
rate cuts.
The euro dipped 0.1 percent to $1.4583 after stumbling to a
seven-month trough of $1.4556 in early trade.
Market swings were exaggerated after U.S. financial markets
were closed on Monday for the Labor Day holiday.
The dollar was nearly flat at 108.03 yen <JPY=>, above a
one-month low of 107.62 struck the previous day.
Sterling touched a two-year low of $1.7850 <GBP=> before
pulling back to $1.7920, down 0.5 percent.
The dollar index <.DXY> climbed 0.7 percent to 77.69 after
hitting an eight-month high of 77.823.
The Australian dollar fell to $0.8472 <AUD=D4>, and hit a
fresh one-year low of $0.8458. It had briefly risen as high as
$0.8534 after the rate cut news.
The market showed little follow-through reaction to the
surprise resignation of Japanese Prime Minister Yasuo Fukuda on
Monday, the second leader to step down in less than a year. The
yen initially dipped on the news. []
"Fukuda's resignation itself was not a decisive factor. It
is his successor the market is interested in, and a wait-and-see
mood is likely to prevail until the details are hammered out,"
said a trader at a European bank.
"The dollar is up on oil, but the yen can hold out against
the dollar as other currencies are in retreat," the trader said.
(For more stories on Fukuda's resignation click [])
The yen climbed broadly as the slide in the pound and euro
have prompted market players to unwind carry trades, in which
the low-yielding yen is used to fund purchases of
higher-yielding currencies.
The euro hit a five-month low of 157.12 yen <EURJPY=R>,
while the pound also sank to a five-month low before later
trimming losses <GBPJPY=R>.
(Additional reporting by Satomi Noguchi; Editing by Chris
Gallagher)
