* Euro falls to five-month lows versus dollar
* Pound hits 17-month low, dollar trades at 110 yen
* Some analysts say long-term dollar recovery under way
(Recasts, adds comments, changes byline, dateline, previous
LONDON)
By Vivianne Rodrigues
NEW YORK, Aug 8 (Reuters) - The dollar surged against the
euro on Friday and was on track for its biggest one-day gain in
four years as concerns mounted that the U.S. economic slowdown
is spreading to the euro zone and around the world.
Most major currencies, including sterling and the Swiss
franc, fell 1 percent or more against the dollar, which some
analysts suggest may finally be emerging from a broad downtrend
that has lasted almost seven years.
On Thursday, European Central Bank President Jean-Claude
Trichet highlighted increasing risks to euro zone growth,
Japan's government said the country's economy may be in
recession, and one closely-watched measure of British house
prices showed the biggest monthly fall on record in July.
Coupled with dollar-supportive developments such as a
surprising rebound in U.S. home sales Thursday and continued
decline in oil prices Friday, demand for the greenback soared.
"This is the capitulation of the last euro bulls out
there," said Michael Woolfolk, a senior currency strategist at
The Bank of New York Mellon in New York. "After Trichet's
remarks yesterday on the poor outlook for the euro zone
economy, they had to throw in the towel and buy dollars."
In morning trading, the euro was down 1.7 percent on the
day at $1.5057 <EUR=>, a five-month low and its steepest
one-day drop since June 2004, according to Reuters data.
The euro is now almost 10 cents below the record high of
$1.6038 struck less than a month ago.
The dollar's rally has been supported in part by a sell-off
in crude oil. Prices tumbled from a peak of over $147 a barrel
<CLc1> last month to below $117 on Friday in New York.
Despite the continued fragility of the U.S. financial and
housing sectors, the near-term technical picture for the euro
and other currencies has deteriorated quickly and further
declines are likely, analysts said.
"The contagion is now going global. The data is manifesting
itself in economies around the world," said Neil Jones, head of
hedge fund FX sales at Mizuho in London. "The contagion trade
is very much factored into the dollar, but not for other
economies."
The euro traded below major technical support to below its
200-day moving average at $1.5225. It hasn't closed below this
technical level since March 2006.
"Euro/dollar broke through some important levels and
despite the rapid advance of the dollar this week, we may see
more gains," said Woolfolk at the Bank of New York. "Bottom
line: this may be a sustained rally."
The dollar rose 1.6 percent against a basket of currencies
to 75.755 <.DXY>, its strongest since late February. It is up
about 3 percent on the week, the biggest rise since the first
week of January, 2005.
Sterling slid 1.2 percent to a 17-month low of $1.9201
<GBP=>, while the dollar gained as much as 0.5 percent against
the yen to 110.09 yen, its highest since January <JPY=>.
DOLLAR TURNAROUND
Investors interpreted Trichet's comments, after the ECB
left interest rates on hold at 4.25 percent, as a signal
policymakers are increasingly concerned with the bleak growth
outlook, potentially paving the way for lower rates.
Preliminary data on Friday showed Italy's economy shrank in
the second quarter, and economists think figures next week will
show Germany's economy shrinking at an even faster rate [].
In contrast, data on Thursday showed U.S. home sales contracts
signed in June rose to their highest since October.
"The dollar is, in my view, in a genuine recovery. This
trend could run further than many think," said Stephen Jen,
global head of currency strategy at Morgan Stanley in London.
The Canadian dollar fell to a one-year low against the
greenback after data showed the highest Canadian job losses in
July in over 17 years. For more see []. The U.S.
dollar rose over 1 percent to C$1.0679 <CAD=>.
(Additional reporting by Jamie McGeever in London; Editing by
James Dalgleish)
