FOREX-Dollar falls sharply vs euro on euro zone inflation, U.S. GDP data
* Euro zone inflation surprise drives euro higher
* U.S. revised GDP data hurts dollar
* Russian ruble, Ukraine's hryvnia rebound despite tensions
By Sam Forgione
NEW YORK, Feb 28 (Reuters) - The dollar fell to a two-month low against the euro on Friday after data showed euro zone inflation unexpectedly held steady this month and U.S. economic growth was revised lower for the fourth quarter.
The European Union's statistics office Eurostat estimated that consumer prices in the 18 countries sharing the euro rose 0.8 percent year-on-year this month, a sign of stability that cooled expectations that the European Central Bank might ease monetary policy as early as next week.
"Expectations for ECB easing subsided after the CPI (consumer price inflation) numbers," said Vassili Serebriakov, currency strategist at BNP Paribas in New York.
The U.S. Commerce Department, meanwhile, said on Friday gross domestic product expanded at a 2.4 percent annual rate in the fourth quarter, down sharply from the 3.2 percent pace of growth reported last month and the 4.1 percent expansion logged in the third quarter.
The data stoked fears the Federal Reserve could pause cuts to its monthly bond-buying program, which analysts said would hurt the dollar since it would help keep interest rates low and drive capital flows into higher-yielding assets outside the United States.
"This motivates the Federal Reserve to keep monetary policy easy," said Kathy Lien, managing director for FX strategy for BK Asset Management.
The euro hit a session high of $1.3824 against the dollar, marking its highest level since late December. It last traded up 0.73 percent against the dollar at $1.3809. The currency is on track to post its best month against the dollar since April.
The dollar index, which tracks the U.S. currency's performance against a basket of major currencies, was last down 0.64 percent. The index is on pace to post its worst monthly performance since September.
The dollar pared losses against the yen, meanwhile, to trade just 0.08 percent lower at 102.03.
Before the move on the euro, the day's dominant trend had been gains for the yen, investors' best choice as a safe haven from concerns over a weakening Chinese yuan and tensions in Ukraine.
The yen was last year's major loser among the world's most traded currencies, down around a fifth in trade-weighted terms.
RUSSIA, UKRAINE CURRENCIES REBOUND
The dollar was last down 0.3 percent against the ruble at 35.93, showing a recovery in the Russian currency after it hit a five-year low on Feb. 26 amid protests in Ukraine.
The recovery came despite ongoing tensions in neighboring Russia and Ukraine. Armed men took control of two airports in Ukraine's Crimea region on Friday in what Ukraine's new leadership described as an invasion and occupation by Moscow's forces.
The ruble's recovery may mark a "relief rally" of traders buying the currency after the large selloff, said BK Asset Management's Lien.
Ukraine's hryvnia has also recovered sharply. The dollar was last down 7.62 percent at 9.7 hryvnia, marking a rebound in the Ukrainian currency after it hit a record low against the dollar on Thursday at 10.6 hryvnia.
The yuan recovered some ground in European trade, but still lost 0.87 percent for the week against the dollar, its biggest weekly loss on record.
Most western bank analysts are agreed that the moves by the People's Bank of China are aimed at squeezing out some of the speculative money that has banked on the yuan's steady rise against the dollar over the past decade.
"I think Chinese authorities are not just aiming to widen the band on the yuan with this move, I think they are also as concerned about growth and the aim here is to put a stop to the steady appreciation we have seen in recent years," said Neil Mellor, strategist with Bank of New York Mellon in London.