Dollar tumbles to record lows, recession risks mount

By Lucia Mutikani

NEW YORK (Reuters) - The dollar dropped to all-time lows against the euro and a basket of currencies on Wednesday after Federal Reserve Chairman Ben Bernanke signaled further interest rate cuts in the fight to avert a U.S. recession.

Risks of a contraction in the world's largest economy were again heightened by a report showing new U.S. single-family home sales fell in January to the lowest rate in nearly 13 years and housing inventories swelled, despite falling prices.

Adding to the gloom over the fragile U.S. economy, orders for long-lasting domestic manufactured goods recorded their biggest drop in five months in January, a government report showed.

That piled on the selling pressure for the dollar. Bernanke's reiteration that growth risks rather than inflation were the main focus for the U.S. central bank left investors anticipating another half-percentage-point cut next month.

"Clearly the risk (of a recession) is there and that's what the Fed is responding to. Markets are back to the theme of trading interest-rate differentials," said David Gilmore, partner at FX Analytics in Essex, Connecticut.

The euro surged as high as $1.5143, according to Reuters data, the first time it has climbed above $1.51 in its nine-year history. It last traded at $1.5135, up 1.1 percent on the day.

The New York Board of Trade's dollar index, which charts the dollar's performance against a basket of currencies, dipped to a lifetime low of 74.070 .DXY. It last traded down 0.8 percent around 74.168.

HOPE NOT LOST ON DOLLAR