* Euro within sight of 14-mth low of $1.2510
* New Zealand dollar falls after retail sales disappoint
* Dollar index strong, near 13-mth highs
By Rika Otsuka
TOKYO, May 14 (Reuters) - The euro steadied near 14-month
lows against the dollar on Friday on concerns that rigorous
fiscal tightening in Europe would dampen an already-weak
recovery.
The New Zealand dollar was on the defensive after sluggish
retail data reaffirmed expectations of a subdued recovery in the
country, which will temper expected interest rate rises from the
central bank this year. [].
The battered euro <EUR=> was at $1.2545, up 0.1 percent from
levels seen in New York on Thursday. The single-currency is on
the way to ending a volatile week in negative territory against
the dollar after a massive $1 trillion emergency rescue package
reached on Monday boosted it to near $1.31.
Traders said euro buying has been coming in when the euro
nears the $1.25 level in Asian trade, where players suspect some
large option barriers are in place.
It hovered around 1.4010 Swiss francs <EURCHF=R>, holding
above a record low of 1.3997 francs hit on trading platform EBS
on Thursday.
Still, the outlook for the euro was bearish with investors
nervous over the commitment and resolve of EU member states to
make significant inroads into consolidating fiscal positions.
"While some euro zone members' efforts to cut fiscal spending
are welcomed, investors are wondering how long efforts will be
sustained," said an FX trader at a major Japanese bank.
"Investors are also worried that fiscal tightening will
hamper growth in Europe."
But European Central Bank President Jean-Claude Trichet said
in an interview with German business daily Handelsblatt published
on Friday that it is a complete fallacy to say fiscal soundness
dampens growth.
He also said the ECB will mop up the liquidity created
through buying government bonds primarily by taking term
deposits. []
The dollar was supported after encouraging data from the U.S.
and expectations that the Federal Reserve will be the first to
move among the major central banks to raise interest rates.
The dollar index <.DXY> <=USD> inched up 0.1 percent to
85.33, near a 13-month high of 85.459 reached this week.
The greenback was in part boosted by inflows from investors
fleeing the euro zone and partially by expectations that the
recovery in the U.S. was on much more solid ground.
[].
"I think we are at the point where, whichever way you think
the world is going to go - boom or bust - the dollar index will
probably head higher," said Adam Carr, senior economist at ICAP.
"It's already had a solid run, but love for the euro is
almost non-existent at the moment and the U.S. economy is staging
a decent bounce back. I don't know if there is a near term
catalyst to change the euro's fortunes."
Traders say, if the euro breaks below $1.25, stop-loss
selling could see it push toward $1.2330, its October 2008 low.
The euro edged up 0.2 percent to 116.50 yen <EURJPY=R> after
falling below 116 yen in early Asian trade. Gains in the European
single-currency were limited partly on concerns about Japanese
retail money flowing out of the euro zone, traders said.
Kokusai Asset Management's Global Sovereign fund, the world's
second-biggest bond fund, cut its exposure to the euro by 4.8
percentage points since the end of March to 29.6 percent on May
10 as the euro zone's debt crisis intensified.
The fund also cut its exposure to the British pound and the
yen, its managers said, but its weightings rose in bonds
denominated in U.S. and Canadian dollars. []
The dollar stood at 92.90 yen <JPY=R>, up 0.2 percent from
late trade New York trade.
Sterling steadied a day after worries about Britain's public
finances undermined it. Sterling <GBP=D4> was up 0.1 percent at
$1.4625 <GBP=D4>, having shed 1.4 percent on Thursday after data
showing the UK goods trade deficit widened more than expected in
March. [].
That came after Bank of England Governor Mervyn King said
weaker euro zone export markets had increased growth risks for
the British economy.
The New Zealand dollar fell to near $0.71 after data showed
on Friday that seasonally adjusted first quarter retail sales
rose 0.2 percent, compared with a Reuters poll forecast of a 0.3
percent increase. The currency then recovered early losses to
trade at $0.7132 <NZD=D4>, almost flat from late U.S. trade.
(Additional reporting by Anirban Nag in Sydney, Kaori Kaneko in
Tokyo; Editing by Joseph Radford)
