FOREX-Euro rises above $1.58 as Fed, oil weigh on dollar

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

By Toni Vorobyova

LONDON, May 22 (Reuters) - The euro rose above $1.58 for the first time in a month on Thursday after a cut in Federal Reserve's 2008 growth forecast and crude oil's surge to fresh record highs stirred fears about the health of the U.S. economy.

In its April meeting minutes, the Fed also lifted its inflation forecast and suggested it had finished cutting rates after cutting them to 2 percent last month.

Oil jumped over the $135 a barrel mark CLc1, bringing its gains for the year to date to 40 percent and fuelling worries the United States is sliding into stagflation -- a vicious combination of rising inflation and tepid growth.

The dollar has taken a hit not only because it tends to fall when oil rises, but also because the U.S. is facing such a toxic mix of growth and price pressures at a time when the Fed has slashed interest rates to buttress the economy.

"We still keep our scenario of a weak U.S. dollar. The minutes of the FOMC overnight were not particularly positive...When you look at the policy mix between inflation and economic data, it is still negative for the dollar," said Carole Laulhere, currency strategist at Societe Generale in Paris.

"Oil prices are rallying every day and it weighs on the dollar, and the same for equity markets," she added.

The euro struck a one-month peak of $1.5814 <EUR=> according to Reuters data, its highest since April 24.