FOREX-Dlr holds firm; rate outlooks reassessed

* Dollar rally gathers steam, dlr index at 1-month high

* ECB rate outlook tempered

* M+A activity back on radars, with InBev offer

* Peripheral jitters on Irish EU referendum

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

By Veronica Brown

LONDON, June 12 (Reuters) - The dollar hit a one-month high versus a basket of major currencies, while the euro fell sharply on Thursday with investors continuing to reassess U.S. and euro zone rate expectations.

Merger and acquisition activity also pressured euro/dollar, with Belgium-based InBev -- the world's largest beer producer by volume -- launching a $46.3 billion bid for U.S. maker of Budweiser and Michelob. If successful, that would be the third largest ever foreign takeover of a U.S. company [ID:nL12592065].

Euro sentiment was further undermined as France's economy minister Christine Lagarde cast a shadow over expectations for a European Central Bank rate hike in July [ID:nPAB004122].

This followed comments on Wednesday from ECB Executive Board member Jeurgen Stark who said the central bank is not considering a series of rate rises, after ECB chairman Jean-Claude Trichet flagged a possible July rate hike last week [ID:nWEA9196].

At the same time, the U.S. Treasury and Federal Reserve have cranked up anti-inflationary language, marking a significant shift in policy stance there.

"Now we're seeing a dose of reality being kicked into interest rate sentiment, at least in the short term. Trichet in my mind was very deliberate in terms of what he said in terms of a possible rate hike in July," Rabobank strategist Jeremy Stretch said.

"But beyond there I think the window of opportunity for the ECB is very small and very narrow and Mr Stark et al have re-identified that as the underlying rationale," he added.

Analysts also cited peripheral jitters as Ireland kicked off polling on a referendum over EU reforms.