FOREX-U.S. growth worries hammer dollar to record lows

(Changes byline, updates prices, adds quotes)

By Veronica Brown

LONDON, Feb 29 (Reuters) - The dollar hit record lows against the euro, Swiss franc and a basket of major currencies on Friday, pressured by concerns about the U.S. economy and expectations of further aggressive interest rate cuts.

A surprisingly large rise in weekly U.S. jobless claims on Thursday and confirmation that the world's biggest economy barely grew in the final quarter of 2007 fuelled recession worries.

That contrasted with upbeat releases from other countries.

Economic woes, coupled with Fed chairman Ben Bernanke's warning on the health of small U.S. banks on Thursday, also weighed on stock markets and risk appetite, to the benefit of low-yielding currencies like the yen and Swiss franc.

Bernanke told the U.S. Congress he expected "some failures" among small U.S. banks due to the financial stress of housing market woes and mortgage losses. [ID:nN28562945]

Analysts also said Bernanke's comments that the weak dollar was helping to shrink the United States' trade deficit were seen as a green light for continued dollar selling.

"We're seeing an overall globally weaker dollar on the U.S. economy and interest rate outlook. Bernanke also kind of suggested that he tolerates a weaker dollar as he said it was good the deficit was contracting," Commerzbank FX strategist Antje Praefcke said.

The euro set a record high at $1.5238 according to Reuters data EUR=, after powering through the psychologically key $1.50 mark on Wednesday.

The dollar index .DXY hit a record low of 73.560 and was poised for its biggest weekly loss in more than two years, of 2.5 percent.

Markets are now fully pricing in a 50 basis point rate cut from the Federal Reserve in March and are giving a more than 1-in-3 chance of a 75 basis point move FEDWATCH.

"The clean dollar bear trend looks set to continue and that could lead to a collision course with authorities if equity markets turn sharply lower again," ING said in a research note.

The dollar also hit a historic low at 1.0428 Swiss francs CHF= and a three-year low at 104.07 yen JPY=.

Some in the market said Japanese data released on Friday showing a surprising jump in consumer spending and rising consumer prices also helped to push the yen higher.