FOREX-Dollar sinks to record low vs euro on weak US data

(Updates prices, adds comment, changes byline)

By Gertrude Chavez-Dreyfuss

NEW YORK, April 16 (Reuters) - The dollar plummeted to lifetime lows against the euro on Wednesday, as a steep decline in U.S. home construction and record high euro zone inflation underscored the contrasting growth paths of the two economies.

The euro rose to $1.5977 <EUR=> against the dollar, according to Reuters data, its strongest since its 1999 launch, as data showing a record 3.6 percent advance in euro zone prices last month suggested the European Central Bank won't cut interest rates soon. The euro zone single currency also posted its largest daily increase in three weeks.

In contrast, U.S. benchmark interest rates are still seen headed lower, especially after reports showed a sharp slide in March housing starts and an unexpectedly tame core inflation reading, stripping out volatile food and energy costs. For more, see [ID:nN16322404] [ID:nN16324181].

"The divergence of monetary policy between the euro zone and the U.S. is continuing to fuel the euro/dollar's rally," said Omer Esiner, a market analyst at Ruesch International in Washington.

The Federal Reserve -- the U.S. central bank -- has already cut interest rates by 3 percentage points since September and is widely expected to cut them again, to at least 2 percent, in late April. Meanwhile, euro zone interest rates have been at 4 percent for more than a year.

In late afternoon trade, the euro rose 1 percent to $1.5956 while sterling rose 0.4 percent to $1.9709 <GBP=>.

Ruesch's Esiner said despite the euro's rally, the currency seems to be losing momentum. "I do get the sense that we're starting to top out a little bit. I would bet that $1.61-$1.62 is definitely in play, but after that, the euro is going to run out of steam."