* U.S. dollar set for biggest monthly rise since 1997
* Crude rises over $1 on Gustav threat to Gulf of Mexico
* Asian shares climb, European shares flat
By Mike Peacock
LONDON, Aug 29 (Reuters) - Shares held firm on Friday as
markets continued to digest a sharp upward revision to U.S.
economic growth, while oil prices rose and the dollar eased as
investors booked profits after its steep climb this month.
The dollar index <.DXY> dipped about 0.3 percent and oil
<CLc1> rose more than $1 to around $117 a barrel as Tropical
Storm Gustav headed to the Gulf of Mexico, home to a quarter of
U.S. crude production.
Thursday's hefty upward revision of U.S. GDP growth -- to an
annualised 3.3 percent in the second quarter -- underscored the
extent to which the U.S. economy has outperformed rapidly
slowing Europe and Japan since March.
That theme helped propel the dollar in August towards its
largest monthly rise against the euro since January 1997, up
around 5.5 percent on the month.
"It would not be a surprise if the euro were to fall
further," said Kimihiko Tomita, head of foreign exchange for
State Street Global Markets in Tokyo, adding the common currency
could eventually drop below $1.40.
The FTSEurofirst 300 <> index of top European shares
was down 0.1 percent at 1,190.07, teetering either side of
unchanged with declines in auto stocks offsetting gains in
banks, while retailer Carrefour <CARR.PA> jumped after a
reassuring first half update.
Asian stocks climbed, led by industrial firms and exporters,
after the punchy U.S. growth data boosted the outlook for
demand, but shares posted their fourth monthly decline in a row.
Japan's Nikkei share average <> rose 2 percent, lifted
by shares of well-known overseas companies like Honda Motor Co
<7267.T> and Canon Inc <7751.T>.
Official data on Friday showed Japan's industrial output
rebounded in July but economists said it was likely a blip and
would not ease recession fears in the world's No.2 economy, with
inflation at a decade high and job offers at a four-year low.
BIG MONTH FOR DOLLAR, GUSTAV STRENGTHENS
The dollar eased 0.4 percent from late Thursday U.S. trade
to 109.07 yen <JPY=> while the euro climbed 0.3 percent to
$1.4744 <EUR=>.
"A three-day weekend is coming up and some players are
opting to shed long positions on the dollar," said Joseph Kraft,
head of Japan capital markets at Dresdner Kleinwort.
Although the 15-nation currency has bounced from a six-month
low of $1.4570 hit on Tuesday, it has suffered a steep decline
in August after a raft of weak economic data doused expectations
for a European Central Bank interest rate rise this year.
A flash estimate of euro zone inflation at 0900 GMT, is seen
easing to 3.9 percent year-on-year from July's 4 percent.
Sterling hit a 12-year low on a trade-weighted basis as the
spectre of a UK recession bolstered speculation of a possible
interest rate cut this year.
The pound was on track for its biggest monthly loss since
October 1992 -- shortly after Britain was forced to leave the
European exchange rate mechanism.
ECB policymakers, notably Axel Weber, have said this week
that talk about lower euro zone rates is premature.
In the starkest of contrasts, UK rate setter David
Blanchflower, who has consistently voted for easier policy, told
Reuters on Thursday that big cuts in interest rates were needed
now to stop the economy heading into a deep and prolonged slump.
Euro zone government bonds rose modestly after a sell-off
spurred by diminished expectations of ECB rate cuts.
September Bund futures <FGBLU8> were 21 ticks higher from
Thursday's settlement close at 114.36 with trading likely to be
subdued ahead of a long holiday weekend in the U.S.
Crude oil for October delivery was rose $1.41 or 1.2 percent
to $117 a barrel, after rising as high as $117.15 earlier.
Tropical Storm Gustav was blamed on Thursday for at least 68
deaths in the Caribbean and U.S. forecasters said it could hit
New Orleans and Gulf of Mexico oil fields.
Forecasters said the storm could intensify rapidly and could
within 72 hours become a Category 4 or 5 hurricane, the most
severe on the hurricane intensity scale.
