* Dollar rises versus euro, yen
* Euro zone second-quarter growth shrinks 0.2 pct
* U.S. CPI, jobless claims rise more than expected
(Adds comments, updates prices)
By Vivianne Rodrigues
NEW YORK, Aug 14 (Reuters) - The U.S. dollar rose broadly
on Thursday amid signs of higher inflation in the United
States, while reports showed contraction in the euro zone's
economy.
Data showed U.S. consumer prices rose at twice the rate
expected in July and a separate weekly report showed strain in
U.S. labor markets.
Analysts said higher prices in the short term may help
boost the case for interest rate hikes by the Federal Reserve.
But they warned that over time, inflation would hurt the U.S.
economy.
"Higher inflation is positive for short-term interest rates
in general, but an inflation-driven rise in yields wouldn't
necessarily be good for the dollar in the medium term," said
Bob Lynch, a currency strategist at HSBC in New York.
The Labor Department said the Consumer Price Index, a key
gauge of inflation, rose 0.8 percent in July after a 1.1
percent jump in June. That was far above the 0.4 percent gain
forecast by economists polled by Reuters. For details see
[].
In another report, the number of U.S. workers filing new
claims for jobless benefits fell by 10,000 last week, but was
well above the level economists expected. [].
The jobless claims "numbers are a little skewed to the
upside based on some statistical quirks, but clearly are not
great," said Dustin Reid, a foreign exchange strategist at ABN
Amro in Chicago.
But referring to consumer prices, he added that "some
people say higher inflation should lead to higher interest
rates and a higher U.S. dollar, a textbook reaction."
The dollar index, which measures the value of the greenback
against a basket of six currencies, gained 0.2 percent to 76.42
<.DXY> in midday trading in New York. The dollar was 0.2
percent higher at 109.69 yen <JPY=>.
The euro was 0.3 percent lower at $1.4872 <EUR=>. The
European currency is now more than 10 cents below a record high
of $1.6038 struck in July.
The euro also declined against sterling. It traded 0.5
percent lower at 79.41 pence <EURGBP=>.
German and French gross domestic product shrank in the
second quarter, culminating in a 0.2 percent contraction in
overall euro area growth that raised the possibility of
recession in Europe.
The dismal readings came a day after the Bank of England
issued a bleak outlook for the UK economy, while official
figures showed Japan's economy shrank in the second quarter and
Australia's central bank said it would not wait for inflation
to fall before cutting interest rates.
"The contraction in second-quarter GDP cements the
extremely negative newsflow we've seen over the summer. The
euro zone is slowing and this has to be priced into the
currency markets," said Teis Knuthsen, head of FX research at
Danske in Copenhagen.
Traders have pared bets the European Central Bank will
raise interest rates a second time this year from the current
4.25 percent. The implied yield on the December Euribor futures
contract was at 4.95 percent, compared with 5.04 percent at the
end of July.
The dollar has rallied more than 4 percent against the euro
this month with help from a sell-off in oil prices and weak
data in Europe and Asia, although the pace of appreciation has
slowed in the last three sessions.
Oil prices are down more than $30 from a record high hit in
July. Crude oil <Clc1> traded 1.2 percent lower on Thursday at
$114.66 per barrel.
Still, some analysts say upside potential for the dollar
remains and is likely to occur over the course of the remainder
of the year.
"We believe a move below $1.40 in EUR/USD in 2009 is easily
achievable given the marginal improvement in the U.S. versus
euro-zone growth," currency analysts at JP Morgan Chase said in
a note.
(Additional reporting by Lucia Mutikani and Gertrude
Chavez-Dreyfuss in New York and Veronica Brown in London;
Editing by Dan Grebler)
