* Euro up 0.3 pct vs dollar, dlr index hits 4 1/2-mth low
* Portugal comments on euro strength boost single currency
* U.S. stock futures gains helps to boost risk demand
(Adds comment, updates throughout)
By Naomi Tajitsu
LONDON, May 20 (Reuters) - The euro rose on Wednesday, while
the dollar hit its lowest level against a basket of currencies
in more than four months as slight gains in U.S. stock futures
prompted some investors toward perceived riskier assets.
Market participants said comments from Portugal's finance
minister that the European Union was not concerned about
strength in the euro helped the single currency to extend gains,
while a pull-back in European shares from a session lows helped
to stoke risk demand.
Currency movements continued to track the stock market, as
some investors looking for signs of a recovery in the global
economy use share prices as a gauge of how much risk the market
is willing to take.
"It's something you just can't fight at the moment; the
correlation between stocks and currencies has remained very
tight," said Adam Cole, global head of currency strategy at RBC
in London.
In an interview with Reuters, Portuguese Finance Minister
Fernando Teixeira dos Santos said a stronger euro, which has
gained more than 3 percent against the dollar in the past month,
had not been a concern among European finance ministers.
[]
Analysts said currencies remained in a consolidation phase
as markets try to determine whether an economic recovery will
take hold later this year, while adding traders were cautious of
becoming too pro-risk without seeing any hard economic data.
By 1111 GMT, the euro was up 0.3 percent at $1.3664 <EUR=>,
having climbed as high as $1.3678 according to Reuters data.
Technical analysts say the pair face heavy chart resistance
above $1.37 at May and March highs.
U.S. stock futures <SPc1> rose 0.3 percent, while European
shares <> trimmed some losses to trade 0.4 percent lower
on the day.
The single currency was flat at 130.78 yen <EURJPY=R> after
falling to 129.76 yen earlier in the global session.
Markets showed little reaction to German producer prices
which fell a bigger-than-expected 1.4 percent in April from the
previous month, the sixth monthly decline. [].
Gains in the euro pushed the dollar index <.DXY>, which
tracks the dollar's movements against currencies belonging to
the United States' biggest trading partners, as low as 81.866,
its lowest since early January.
The single European currency comprises the biggest share of
the index, and as a result, can be a driver of index moves.
The dollar was down 0.3 percent at 95.68 yen after hitting a
low around 95.50 yen earlier in the session <JPY=>.
Sterling <GBP=D4> was little changed at $1.5475, retreating
from a five-month high of $1.5538 <GBP=D4> as traders booked
profits after the currency rallied on easing pessimism about the
UK economy and financial sector.
Minutes from the Bank of England's May policy-setting
meeting showed policymakers voted unanimously to keep interest
rates at a record low of 0.5 percent and extend its quantitative
easing programme by 50 billion pounds, although they discussed a
bigger increase. []
Minutes from the U.S. Federal Reserve's policy-setting
meeting on April 28-29 will be released later in the day.
EURO RISKS
The euro has rallied against the dollar this month and is
hovering near a two-month high but some analysts say the risk
demand tide may turn due to the possibility for weak U.S.
economic data, which could sour investors on the single
currency.
As a result, Cole at RBC recommended putting on bets for
euro weakness against the dollar to around $1.32-$1.29 in the
coming month.
He said that given dismal euro zone figures, including
contracting growth in many of the region's nations shown in
figures last week, the euro had few merits of its own, and may
be dumped if demand for risky positions begins to sour.
He added weak data on U.S. jobs and business and consumer
confidence down the line could sting the euro/dollar on the view
bad news for the U.S. economy will continue to prompt safe-haven
buying in the U.S. currency.
"Effectively, this is a bet that we get a short, sharp move
from the top of the last two months' range (from around $1.37 to
around $1.30) to the bottom," Cole said.
The view that the global economy continues to struggle was
illustrated earlier on Wednesday, when data showed Japan's
economy shrank a record 4.0 percent in the first quarter as
companies slashed investment and exports. []
Despite the disappointing reading, some economists saw a
return to modest growth in the coming quarters even if the
longer-term outlook remains unclear.
"The market for now at least appears willing to look on the
bright side and interpreted the numbers as perhaps signalling
the bottom for the economy," said analysts at Calyon in a note.
(Additional reporting by Tamawa Desai; editing by Chris
Pizzey)
