* Dlr index hits 2008 high as oils fall on Gustav downgrade
* Sterling plumbs new lows as gloom grows on UK outlook
* Yen up on equity losses, shrugs off Japan PM resignation
(Recasts, adds comment and quote, updates prices)
By Jamie McGeever
LONDON, Sept 1 (Reuters) - The dollar rose on Monday to its
highest this year against a basket of major currencies, boosted
by a sharp fall in oil prices, while sterling extended its
recent slide and fell to new record lows against the euro.
The rise in the dollar's broad value <.DXY> pushed the euro
under $1.46 and sterling below $1.80 for the first time since
April 2006. The pound's losses were exacerbated by UK economic
data and a bleak economic view from the UK finance minister.
The yen shrugged off the surprise resignation of Japanese
Prime Minister Yasuo Fukuda and took its cue from weakness in
global equity markets to notch up five-month highs against the
euro and other major currencies.
Monday's highs in the dollar and yen, and the lows in
sterling and oil, were reached in trading conditions that were
less liquid than usual as U.S. markets were closed for the Labor
Day holiday.
"This is mainly due to the oil effect. There's a huge
relationship between the oil and the dollar," said Carole
Laulhere, currency strategist at Societe Generale in Paris.
"Oil is the main driver for the dollar today."
Hurricane Gustav was downgraded on Monday to Category 2
status, diminishing the risk posed to the oil and energy
facilities on the U.S. Gulf Coast. Oil tumbled more than 4
percent below $111 a barrel <CLc1>.
The dollar has strengthened sharply in recent weeks as oil
has lost more than $35.
Cheaper oil eases the burden on the U.S. consumer, who
accounts for some 70 percent of all U.S. economic activity, and
encourages dollar-supportive trading and the unwinding of
hedging strategies.
At 1500 GMT the dollar index was up 0.6 percent on the day
at 77.63 <.DXY>, having earlier peaked at 77.694, a level not
seen since last December.
The euro <EUR=> fell half a percent to $1.4590, edging
closer close to a six-month low of $1.4567 hit last week.
YEN SHRUGS OFF FUKUDA
Sterling sank to a record low against the euro and to its
weakest in 12 years against the currencies of the UK's major
trading partners after UK Chancellor of the Exchequer Alistair
Darling said at the weekend the economic outlook was its most
challenging in 60 years [].
The pound fell below $1.80 for the first time since April
2006, suggesting the factors that contributed to its dismal
showing in August, when it suffered its steepest monthly decline
in 16 years, are very much alive.
Mortgage and manufacturing data did little to dispel the
notion that the economy may actually be in recession. While the
Bank of England is expected to keep interest rates on hold later
this week, traders are looking for an easing before end 2008.
"The economic data is just coming in awful and you aren't
getting the sense of things bottoming out like you might in the
U.S.," said Michael Hart, head of European FX strategy at
Citigroup.
"It's very hard to construct a positive story out of the UK
from the data."
Data on Monday showed that the UK manufacturing sector is
still contracting and mortgage approvals fell to an all-time low
in July. See [].
At 1500 GMT sterling <GBP=> was down 1.2 percent against the
dollar at $1.7992, according to Reuters data, having traded as
low as $1.7985.
The euro was up half a percent at 81.03 pence <EURGBP=>,
having earlier hit an all-time high of 81.40 pence, while the
BoE's index of sterling's value against currencies of the UK's
major trading partners was fixed at a 12-year trough of 88.7
<=GBP>.
The Japanese yen, meanwhile, shrugged off the surprise news
of Fukuda's resignation -- the second Japanese leader to resign
abruptly in a year -- over what he called political gridlock.
It hit five-month highs against the euro, Australian dollar
and sterling as investors' appetite for risky carry trades that
involve selling the low-yielding yen cooled.
"During times of domestic (economic) difficulties or
(financial market) stress you get repatriation, and that
supports the yen, as does carry unwind," said Citigroup's Hart.
Societe Generale's Laulherne agreed: "Risk sentiment is much
important for the yen than politics."
The dollar was last 0.6 percent lower at 108.15 yen <JPY=>
and the euro was down 1.2 percent at 157.75 yen, having earlier
traded as low as 157.56 yen.
The yen also hit five-month highs against higher-yielding
currencies at 91.75 yen per Australian dollar <AUDJPY=R> and
194.16 yen per UK pound <GBPJPY=R>.
