Dollar hits record low vs euro

LONDON (Reuters) - The dollar hit a record low beyond $1.50 versus the euro on Wednesday as weak U.S. data reinforced the view that U.S. interest rates have further to fall, driving up oil and gold prices.

European stocks fell after results from British mortgage lender HBOS HBOS.L rekindled concern over corporate profitability in the wake of the global credit crunch, while U.S. stock futures pointed to a weaker Wall Street opening.

The U.S. currency was broadly weaker, hitting record lows too against a basket of major currencies and the Swiss franc.

Its fall against the euro was aided by a surprisingly strong reading of German corporate sentiment on Tuesday from the Ifo research institute which reduced expectations that the European Central Bank might soon cut interest rates.

ECB Governing Council member Axel Weber sounded a hawkish note on Wednesday, saying market expectations that the bank would cut interest rates failed to consider the dangers of higher inflation.

This contrasted sharply with news on Tuesday that U.S. consumer sentiment had hit a five-year low and that the collapse in U.S. house prices accelerated to a record pace in the fourth quarter of 2007 in further signs that the U.S. economy may be in recession.

Comments by U.S. Federal Reserve Vice Chairman Donald Kohn put further pressure on the dollar. He said a weak economy was a bigger worry than inflation risks, suggesting a willingness to keep cutting interest rates.

"The overnight explosion has been quite aggressive ... The question is what's going to arrest the upward momentum (in the euro) and at the moment it would probably require some better U.S. data," said Jeremy Stretch, strategist at Rabobank.

The euro was up 0.4 percent at $1.5036, having hit a record $1.5087 earlier. The dollar fell to a record low of 74.226 against a basket of major currencies.

Markets have priced in another 50 basis point cut to the 3.0 percent Fed funds rate next month, but have discounted only two 25 basis points worth of cuts by the ECB for this year.

EUROSTOCKS FALL, COMMODITIES SURGE

Easing European shares took the gloss off a firmer global equity market after Japan's Nikkei hit a six week high.

Shares in European banks extended losses after results from Britain's HBOS HBOS.L fell short of expectations. HBOS shares fell more than 10 percent.

The FTSEurofirst 300 index of top European shares was down 0.7 percent at 1,351.35 points.

U.S. stock futures were pointing to a weaker Wall Street opening after three days of gains, with investors now awaiting U.S. housing and manufacturing data and testimony from Fed Chairman Ben Bernanke.

The dollar's difficulties drove commodities higher. U.S. crude oil prices hit record highs above $102 a barrel, while Brent crude oil rose above $100. High winter fuel demand in the United States and Europe due to cold weather and indications from OPEC that it will not increase production also kept oil prices strong.

"(OPEC) appears reluctant to heed requests from Western leaders to add more barrels to the market in order to soften prices and appears to be heading for an unchanged scenario when it meets next Wednesday," said Robert Laughlin at MF Global.

Gold prices hit a historic high at $964.70, with the weaker dollar making dollar-priced commodities more attractive for non-U.S. investors.

"It seems investors are more concerned with the threat that inflation/recession poses, and with two of gold's key driving forces (EUR/USD and oil) now in to uncharted territory...it seems inevitable that gold will challenge new highs closer to $1000/oz," said analyst James Moore of TheBullionDesk.com.

(Additional reporting by Toni Vorobyova; editing by David Christian-Edwards)