(Updates prices, adds reaction to euro zone inflation)
* U.S. dollar set for biggest monthly rise since 1997
* Crude rises over $1 on Gustav threat to Gulf of Mexico
* European shares flat, euro zone inflation falls
By Mike Peacock
LONDON, Aug 29 (Reuters) - Shares held firm on Friday as
markets digested a sharp upward revision to U.S. economic growth
and a fall in euro zone inflation, while the dollar eased as
investors booked profits after its steep climb this month.
The dollar index <.DXY> dipped about 0.2 percent and oil
<CLc1> rose more than $1 to around $117 a barrel as Tropical
Storm Gustav headed for 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
about 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.
Euro zone inflation slowed more than expected in August,
official statistics showed on Friday, to 3.8 percent
year-on-year from an all-time peak of 4.0 percent in July.
The euro slipped to $1.4728 from $1.4748 just before the
data <EUR=>.
After a raft of European Central Bank officials spoke up
this week, markets are not expecting rate cuts soon.
ECB Governing Council member Klaus Liebscher echoed comments
from colleagues earlier in the week that inflation was too far
above the target of close to but below 2 percent [].
The FTSEurofirst 300 <> index of top European shares
edged up 0.2 percent to 1,193.07, with banking stocks firm and
French retailer Carrefour <CARR.PA> up nearly 7 percent after a
reassuring first half update.
Asian stocks climbed more markedly as the punchy U.S. growth
data boosted the outlook for industrial firms and exporters, 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>.
BIG MONTH FOR DOLLAR, GUSTAV STRENGTHENS
The dollar shed two thirds of a percent against the yen at
108.76 while the euro was up 0.2 percent but more than 13 cents
off its peak of $1.6038, set in mid-July.
"We've had a strong run for the dollar ... (and) some
traders, especially in the States, might not be willing to run
with it over the (upcoming holiday) weekend," said Steve Barrow,
G10 currency strategist at Standard Bank in London.
Although the 15-nation currency has bounced from a six-month
low of $1.4570 hit on Tuesday, it 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.
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> hit a session high of 114.48
and were last 30 ticks higher on the day at 114.47 after the
weaker-than-forecast euro zone inflation data.
Crude for October delivery <CLc1> rose $1.51 to $117.10
barrel by 1035 GMT, just off earlier highs of $117.17.
Tropical Storm Gustav was blamed for at least 68 deaths in
the Caribbean and U.S. forecasters said it could hit New Orleans
and Gulf of Mexico oil fields, prompting energy companies to
halt production and evacuate personnel from offshore rigs.
