FOREX-Dollar powers ahead, breaks below 1.50 versus euro

* Euro dives below 1.50, 5-1/2 month low versus dollar

* Dollar has biggest daily gain vs euro in 7-1/2 years

* Euro zone economy shows signs of weakness (Adds details, updates prices, changes byline)

By Lucia Mutikani

NEW YORK, Aug 8 (Reuters) - The dollar rallied on Friday, posting its biggest one-day gain versus the euro in 7-1/2 years as the market repriced interest rate views amid signs the U.S. slowdown was spilling over to the global economy.

The greenback traded below $1.50 for the first time since February, with oil prices tumbling below $115 per barrel, adding to the euphoria.

European Central Bank President Jean-Claude Trichet's highlighting of increasing risks to euro zone growth on Thursday had left traders to conclude that monetary policy would have to become looser, analysts said.

Added to that, the Japanese government cautioned the country's economy might be in recession, and one closely watched measure of British house prices showed the biggest monthly fall on record in July.

Monetary easing in the euro area and the UK would narrow the interest rate differential with the United States, a major factor behind the dollar's unprecedented decline.

"Trichet's comments were new and unexpected by the market, said Dustin Reid, foreign exchange strategist at ABN-AMRO Bank in Chicago.

"The market in general is repricing not only the euro/dollar interest rate spread, but reassessing what other major central banks will be doing. That's the key driver for the market today."

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.

EURO DIVES TO 5-1/2-MONTH LOW

The euro dived to $1.4999 EUR= at one point, a 5-1/2-month low and its steepest one-day drop since December 2000, according to Reuters data. It was last trading at $1.5004, down 2.1 percent on the day.

The euro is now about 10 cents below a record high of $1.6038 struck less than a month ago.

The ICE Futures US dollar index, which tracks the dollar's performance against a basket of currencies, jumped to 75.903 .DXY, its highest level since February, posting its largest daily gain since July 2002.