* Dollar index up 0.2 percent at 76.898 <.DXY>
* Fears on global economy supporting dollar
(Changes dateline, byline, updates prices, adds quotes)
By Simon Falush
LONDON, Aug 20 (Reuters) - The dollar held near a 2008 high
set the previous session against a basket of major currencies on
Wednesday, as investor bearishness on the global economic
outlook prompted a view that rates outside the U.S. may be cut.
Dollar gains were limited however by higher oil and
continued worry on the U.S. financial and housing sectors.
The slowing growth outlook in major economies outside the
U.S. has supported the dollar as investors begin to price in
rate cuts in economies with high yields, while the U.S. is seen
as having ended its easing cycle.
This view was bolstered by data on Tuesday showing that U.S.
wholesale prices rose at the fastest annual rate in 27 years and
by two policy makers saying the Federal Reserve must be ready to
take action if slowing economic growth fails to curb inflation.
Richard Fisher, president of the Dallas Fed, and Jeffrey
Lacker of the Richmond Fed warned that vigilance on price
pressures is necessary even as oil prices have come off their
peaks.
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However U.S. home building projects fell 11 percent to their
lowest annual rate in more than 17 years, highlighting the
frailty of the U.S. economy.
The dollar's dramatic rise, which has seen the euro fall
more than 12 cents from its record peak last month, has stalled
as investors are uncertain about whether the uptrend can be
sustained in the context of a slowing U.S. economy.
"Investors are anxious about whether the major move
represents lasting dollar strength or is just a major correction
at a time when liquidity is poorest in July and August and moves
are exaggerated," said Teis Knuthsen, head of FX research at
Danske Markets in Copenhagen.
At 0809 GMT, the euro had fallen 0.2 percent to $1.4755
<EUR=>, but held well above a six-month low of $1.4628 hit on
Tuesday according to Reuters data.
The dollar gained 0.4 percent to 110.15 yen <JPY=>, below a
seven-month high of 110.67 yen hit last week.
Crude oil <CLc1> and gold <XAU=> pushed higher and showed
signs of snapping their month-long sell-off. That underscored
the dollar's vulnerability, as the tumbles in oil and gold had
reinforced its broad gains.
MAC WORRIES
Concerns that U.S. home financial firms Fannie Mae <FNM.N>
and Freddie Mac <FRE.N> may need a government bailout -- worries
that pushed U.S. stocks lower for a second straight session on
Tuesday -- also limited appetite for further dollar buying.
The dollar index that measures the dollar's performance
against a basket of six major currencies was up 0.2 percent at
76.898 <.DXY>, after slipping from an early high on Tuesday at
77.413.
However any bouts of dollar weakness are being seen by many
investors as a chance to buy the currency.
"Going forward, we remain of the view that incremental risk
to global growth from weakening growth data from Europe will
continue to put a floor on the USD, classifying EURUSD as a sell
on rallies," UBS said in a note to clients.
(Reporting by Simon Falush)
(Editing by Stephen Nisbet)
