Tame price data adds to dollar's September swoon

By Steven C. Johnson

NEW YORK (Reuters) - The dollar hit a record low against the euro and slumped to an all-time low against a basket of major currencies on Friday as tame inflation data bolstered the case for more interest rate cuts to shore up the U.S. economy.

The Federal Reserve dropped benchmark rates to 4.75 percent last week to shield a sluggish economy from housing and credit crises, and additional rate cuts would further erode the appeal of dollar-denominated assets in the eyes of global investors.

"Everybody has jumped on the anti-dollar bandwagon. The growth story is turning firmly against the dollar, and the Fed is clearly trying to reflate the economy," said Samarjit Shankar, director of global FX strategy at Bank of New York Mellon in Boston.

A muted rise in a monthly measure of U.S. core consumer prices, which exclude food and energy items, helped lift the euro above $1.42, its seventh record high in as many days.

It later sailed through options-related barriers around $1.4250 to a record peak of $1.4278 before easing to $1.4255, up 0.8 percent. Sterling rose 0.9 percent to $2.0460.

The euro has gained 4.75 percent on the dollar so far this month and 5.4 percent during the third quarter ending Friday, the largest increase since the second quarter of 2006.

The dollar index, a gauge of the greenback against a basket of six currencies, hit a record low for the second straight day at 77.666 before easing back up to 77.767, off 0.7 percent.

That left it down 3.8 percent in September, its worst month since April 2006. For the quarter, the index was down 5.1 percent, its largest drop since a 7.5 percent slide in the fourth quarter of 2004.