(Updates prices, adds comment, changes dateline, byline)
* Euro hits 2-1/2-week high vs dollar on US growth fears
* Record oil prices dampens dollar sentiment
* German sentiment surveys eyed for clues on ECB rates
By Steven C. Johnson
NEW YORK, May 19 (Reuters) - The dollar fell to a 2-1/2
week low against the euro on Monday as persistently high oil
prices and sagging confidence among U.S. consumers renewed
concern about the health of the U.S. economy.
Analysts said dealers came into the new week hedging their
bets on a sustained dollar rebound, a move that began on Friday
after the May Reuters/University of Michigan index of U.S.
consumer confidence fell to its lowest level since mid-1980.
Surging oil prices above $127 a barrel also dampened dollar
sentiment, as did the 25-year high in short-term inflation
expectations seen in Friday's consumer data [].
"What scares people right now is the continued rise in oil
prices. Their dollar bullishness is being pared back by the
rise in oil prices, as they see OPEC getting more money and
putting less into U.S. Treasuries," said Marc Chandler, senior
currency strategist at Brown Brothers Harriman in New York.
The euro rose to $1.5632, according to Reuters data, its
highest level since May 1, before easing to $1.5585 <EUR=>, up
0.1 percent from late Friday.
The dollar index, a gauge of the greenback against six
major currencies, also fell as low as 72.552 <.DXY>, its
weakest in over two weeks, before rebounding to 72.765.
The dollar was little changed against the yen at 103.98
<JPY=>, while the Australian dollar scaled a 24-year peak of
$0.9564 <AUD=>, boosted by firm commodity prices and
expectations that domestic interest rates will stay high.
Chandler said a euro break above $1.5644 could put $1.5720
within reach, though he added that a steady grind back toward
its all-time high above $1.60 was unlikely for now.
"That would require further deterioration of U.S. economic
fundamentals and more hawkish talk from the European Central
Bank," he said.
The U.S. data calendar is light this week, with the
highlights likely to come from the producer price index on
Tuesday and existing home sales on Friday.
Analyst said robust readings from two German sentiment
surveys due later this week would likely add euro support by
reinforcing the case for the ECB to leave rates on hold a while
longer rather than cutting them.
Germany releases the ZEW economic sentiment index on
Tuesday and the Ifo index of German business sentiment on
Wednesday.
"Investors might be buying into the idea that the German
data -- ZEW and Ifo later this week -- might be a little bit on
the firmer side of expectations," said Jeremy Stretch, currency
strategist at Rabobank in London.
The surprisingly steep fall in U.S. consumer confidence has
left U.S. short-term interest rate futures showing a roughly 80
percent chance of the Fed raising rates by a quarter percentage
point to 2.25 percent by year end. They had been fully pricing
in such an increase before the consumer confidence data.
Euro zone rates stand at 4 percent, and most analysts
expect the ECB to hold them there when it meets next week and
to dwell on upside inflation risks.
The Bank of Japan is widely expected to keep interest rates
at 0.50 percent at a two-day policy meeting that starts on
Monday. []
(Additional reporting by Toni Vorobyova; Editing by Chizu
Nomiyama)
