FOREX-Dollar heads for best month in 2-1/2 years

(Recasts, adds comments, changes byline and dateline, previously LONDON)

By Vivianne Rodrigues

NEW YORK, April 25 (Reuters) - The dollar headed for its best monthly performance in 2-1/2 years against a basket of major currencies on Friday, boosted by a growing view the Federal Reserve may stop cutting interest rates.

Having been pessimistic on the U.S. economic outlook for some time, investors are now embracing upside data surprises, analysts say.

The perceived odds of the Fed keeping its benchmark interest rate unchanged at 2.25 percent at its meeting next week is now about 26 percent, futures trading shows FEDWATCH. Just over a week ago, futures were evenly split between a 25 and a 50 basis point cut.

Meanwhile, traders are paring bets the next move by the European Central Bank would be a hike in benchmark interest rates.

"Rate expectations are really shifting," said Mark Meadows, a market analyst at Tempus Consulting in Washington. "While most people now believe the Fed is about to end its easing cycle, a growing number of investors believe the ECB may have to start cutting rates really soon. And the dollar is the main beneficiary of that reversal."

The dollar index, which tracks its performance against a basket of major currencies, hit a one-month high of 73.030 .DXY, putting it on track for its best monthly performance since November 2005.

The euro fell as low as $1.5555, its weakest since April 3 <EUR=>, a drop of around 0.5 percent on the day and on track for its biggest monthly decline in nearly a year.