* Dollar slips but eyes best month since Jan. 1997
* Dollar index up over 5 pct in August
* Euro shrugs off soft inflation data
(Recasts with reaction to U.S. data, updates prices, adds
comment, changes byline, changes DATELINE, previous LONDON)
By Nick Olivari
NEW YORK, Aug 29 (Reuters) - The U.S. dollar slipped on
Friday with investors betting the currency's steepest monthly
rise in over a decade was too far, too fast.
A report showing U.S. personal income tumbled unexpectedly
in July, and spending slowed as the effects of government
stimulus wore off, and an inflation measure at a 17-year high,
had little impact on trading. For more details, click
[].
The euro was resilient in the face of lower than forecast
euro zone inflation and weak sentiment indicators, as hawkish
rhetoric from policymakers raised expectations for higher euro
zone interest rates. [].
European Central Bank Governing Council member Klaus
Liebscher echoed comments from other policymakers earlier in
the week that inflation is too high [].
Still, as August comes to an end, the greenback is up more
than 5.0 percent against a basket of currencies, heading for
its biggest monthly gain since January 1997.
Uncertainty about the U.S. economy was much alleviated this
week by reports showing stronger-than-expected U.S. growth in
the second quarter and stronger July orders for durable goods.
"Thursday's revision to second quarter GDP continued the
recent trend of firming data out of the US, though markets are
still sceptical over the sustainability of such numbers," said
UBS in a research note to clients.
Early in New York, the dollar index <.DXY> was down 0.2
percent on the day at 76.981. The euro was up 0.2 percent at
$1.4727, but around 13 cents off its all time high set in
mid-July <EUR=>.
The dollar <JPY=> was down 0.8 percent against the yen at
108.62 yen.
"The conclusion from this report I think is that the U.S.
economy is nearing a bottom," said Greg Salvaggio, senior vice
president of capital markets, Tempus Consulting in Washington
of Friday's inflation report. "But the reason we didn't have a
dollar reaction is that there aren't that many people on board
because of the long holiday weekend."
STERLING SLIDES
Sterling has had an even steeper fall against the dollar in
August than the euro, down 7.7 percent, its biggest drop since
it crashed out of the Exchange Rate Mechanism in 1992.
"The UK economic picture is deteriorating so rapidly, and
the recent housing market data is confirming that. The market
is rushing to revise down its growth forecast for the UK," said
Ian Stannard, senior foreign exchange strategist at BNP Paribas
in London.
"Things are getting worse, not better, for sterling."
The pound last traded up 0.1 percent at 1.8299 on the day
<GBP=>.
Friday is likely to be a shortened global session as U.S.
traders leave early for Monday's Labor Day holiday.
Investors are expected to try to square positions by
selling into any dollar strength before the end of the month
and before next week's August U.S. employment report and
central bank policy decisions in the euro zone and UK.
While the focus now shifts to the latest snapshot of
regional U.S. business activity due later in the session,
geopolitical pressures on the dollar remain a concern with a
report in Britain's Daily Telegraph that Russia may restrict
oil shipments in the coming days in response to the European
Union's threat of sanctions over its military action in
Georgia.
(Additional reporting by Simon Falush in London and
Gertrude Chavez in New York)
(Reporting by Nick Olivari)
