FOREX-Surging oil, rate view lifts euro near record high

(Recasts, changes byline, adds quotes, updates prices)

By Veronica Brown

LONDON, April 22 (Reuters) - The euro rallied towards recent record highs on Tuesday as surging oil prices and hawkish rhetoric from European Central Bank policymakers overshadowed earlier concerns about the European banking sector.

Rising inflation stemming from soaring food and energy prices came firmly into view as U.S. crude oil hit a historic high, topping the $118 per barrel mark CLc1.

This gave added impetus to inflation-busting talk from ECB policymakers, determined to contain the impact of rising prices.

ECB Governing Council member Christian Noyer said the bank would do what is needed to bring inflation back to its target level of just below 2 percent, adding that it would "move rates" if needed.

That followed comments from Governing Council member Yves Mersch, who said the ECB has to ask itself each month whether a rate rise is needed to control inflation. [ID:nL21257173]

"We have been hammered by hawkish comments from ECB members overnight and during the past week, aggressive comments suggesting that not only is the ECB planning to leave rates on hold, but they are also actively considering raising rates to stamp on inflation," said Teis Knuthsen, head of FX research at Danske Markets in Copenhagen.

"That puts a certain perspective on the relative economic stance between the U.S. and the euro area," he added.

The euro rallied, having earlier fallen on news that Germany's BdB banking association has taken control of Duesseldorfer Hypothekenbank (DUOGg.F) and planned to sell it after the property lender ran into problems linked to the financial crisis.

One of Duesseldorfer Hypothekenbank's management board members later told Reuters it is not facing problems that could threaten its existence.

The single currency was last quoted up a quarter percent on the day at $1.5946 EUR=, nearing last week's record high at $1.5983 according to Reuters data.

The dollar was down 0.1 percent at 103.14 yen JPY= and 0.1 percent lower versus a basket of six other major currencies at 71.545 .DXY.

DIVERGING VIEWS

Any dips in the euro from last week's historic high have been contained by a view that interest rate differentials are set to move further in its favour, as the ECB is seen keeping interest rates at least at a six-year high of 4.0 percent for a while.