FOREX-Euro eyes record peak vs dlr as rates seen steady

(Changes byline, updates prices, adds quotes)

By Simon Falush

LONDON, April 15 (Reuters) - The euro came within half a cent of record highs against the dollar on Tuesday as European policymakers reiterated a hawkish monetary policy stance and jitters on the health of the U.S. economy persisted.

Those jitters, and fresh doubts about credit markets, are overshadowing support for the dollar from the Group of Seven financial leaders' strongest expression in seven years about volatility in major currencies, traders said.

The euro meanwhile was boosted by the European Central Bank's continued inflation focus, which analysts reckon will prevent it from cutting rates for a few more months.

ECB Executive Board member Juergen Stark and Governing Council member Miguel Angel Fernandez Ordonez stressed the bank's commitment to price stability in separate comments on Tuesday.

The head of Germany's ZEW economic institute said he would recommend the ECB not to lower rates this year after the current conditions component of its economic sentiment index rose [ID:nBAE001165].

"The euro zone ... is set to remain on hold (on rates) in the near term and that's supporting the euro," said David Pais, currency strategist at Citi.

"Investors are nervous ahead of bank earnings with markets waiting to see how big writedowns are and how bad things are."

Results from Merrill Lynch MER.N and Citigroup (C.N) are due later in the week, with analysts expecting both to announce billions of dollars in bad debt write-downs.

By 1008 GMT the euro was steady at $1.5845, within sight of the record high of $1.5912 hit last week according to Reuters data, and recovering from a post-G7 low of $1.5669 EUR=.

With French EU-norm inflation jumping to a record 3.5 percent year-on-year last month, the data should keep ECB rhetoric hawkish, analysts say.

ECB President Jean-Claude Trichet and Governing Council member Axel Weber attend a book launch at 1500 GMT, and Executive Board member Gertrude Tumpel-Gugerell speaks at a banking conference in Athens at 1730 GMT.

STERLING SLIDES

The dollar edged lower to 100.97 yen JPY=, and the euro also fell slightly to 159.90 yen EURJPY=.

Sterling fell 0.5 percent to $1.9680 GBP= and hit a record low of 80.65 pence per euro EURGBP= after the Royal Institution of Chartered Surveyors' British house price survey showed the lowest reading in its 30-year history. [ID:nL14140660]

"This is a clear signal that things in the housing market are getting worse," said Ian Stannard, senior foreign exchange strategist at BNP Paribas. "The mid-term trend in sterling is to remain lower."

The euro has risen around 9 percent versus both sterling and the dollar since the start of the year.

The G7 financial heads said on Friday they were worried that sharp currency moves could undermine economic and financial stability. But analysts were sceptical whether those words would translate into coordinated intervention to prop up the dollar.

The dollar has come under pressure due to a sluggish U.S. economy -- which some think is already in recession -- and 3 percentage points in rate cuts since September.

The Federal Reserve is expected to cut its fed funds rate again later this month from the current 2.25 percent.

The U.S. producer price index for March is due later on Tuesday and the U.S. March consumer price index on Wednesday.

The health of the U.S. financial sector remained in the spotlight after Wachovia WB.N, its fourth-largest bank, posted a surprise first quarter loss due to credit problems from mortgages and other debt, and cut 500 jobs [ID:nN14343221].

(Additional reporting by Naomi Tajitsu)

(Editing by Gerrard Raven)