FOREX-Dollar index at 1-mth high, Fed cut uncertain

(Changes dateline, byline, updates prices, adds quotes)

By Simon Falush

LONDON, April 25 (Reuters) - The dollar hit a one-month high against major currencies on Friday, and was more than four cents away from record lows against the euro set earlier in the week, boosted by improved sentiment on the U.S. economy.

The number of U.S. workers filing initial claims for unemployment benefits unexpectedly fell last week, data on Thursday showed, in a possible sign that the economy may not be in as much trouble as previously thought.

Fed futures are now pricing in a 30 percent chance of interest rates being held at 2.25 percent this month rather than being cut FEDWATCH. Just over a week ago, the futures pricing was evenly split between a 25 and a 50 basis point cut.

"The futures market has taken a massive amount of easing out of the market and thinks the Fed is done cutting after next week and that's driving momentum for the dollar," said Derek Halpenny, currency strategist at BTM UFJ.

The dollar index, which tracks the greenback's performance against a basket of major currencies, rose to a one-month high of 73.021 .DXY.

By 0753 GMT the euro fell as low as $1.5586, its lowest since April 3 EUR=, down around 0.5 percent on the day and on track for its biggest monthly decline in nearly a year.

In contrast to slightly stronger U.S. data, the Ifo German business sentiment index showed the biggest monthly fall since September 2001 on Thursday, taking the April headline number to a two-year low.

Together with a soft euro zone manufacturing survey, the data knocked the euro off record highs above $1.60 set at the start of the week.

"There was complete ignorance for the potential (euro zone) growth risks in the market and now the perception of these risks has elevated to significant levels," said Michael Klawitter currency strategist at Dresdner Kleinwort in Frankfurt.

JAPAN

The dollar rallied to a two-month high of 104.74 yen JPY=, with the Japanese currency failing to benefit from news that Japanese core consumer prices rose at their fastest pace in a decade in March [JPCPI=ECI].

"The rising CPI won't affect the Bank of Japan which is focusing more on developments in subprime problems," said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.

"The next move will be a rate hike, but it won't happen until late next year when the subprime mess is expected to settle and put Japan back on track for firm export-led growth," he said.

Investors will look for further clues on the health of the U.S. economy and the extent of rate cuts from the Fed from Reuters/University of Michigan consumer sentiment survey released at 1355 GMT.

The Golden Week string of Japanese holidays starts next week, and Australian financial markets were closed on Friday for a national holiday.

(Additional reporting by Rika Otsuka in Tokyo)

(Editing by Gerrard Raven)