FOREX-Dollar steadies as oil eases, near 1-mth low vs euro

By Chikako Mogi

TOKYO, May 23 (Reuters) - The dollar steadied on Friday as oil prices eased on profit taking after hitting another record high, but the currency stayed in sight of a one-month low against the euro on worries that inflation could lead to a deeper U.S. slowdown.

The dollar, which tends to move in the opposite direction to oil prices, had been hit on Thursday as oil jumped to above $135 CLc1 for the first time, fuelling concerns about the U.S. economy just as the Federal Reserve's run of interest rate cuts to bolster the country's growth is seen on hold.

The euro remained resilient, partly because recent solid data from the euro zone's largest economy, Germany, kept intact speculation the European Central Bank was more likely to raise rates than to cut.

The yen also came under pressure as rising energy prices would also hurt Japan's growth, which is showing signs of softening.

"The dollar is getting support as oil prices take a breather, but it remains vulnerable given concerns about inflation dragging down growth," said a senior dealer at a European bank.

"There is no reason to buy the yen either, leaving the euro with the most upside. But currencies are likely to stay in ranges as the market lacks convincing factors to set a clear direction," he said.

Solid stock markets would likely spur risk-taking and prompt investors into carry trades, where they use low-yielding currencies such as the yen to buy higher-yielding assets and currencies, undermining the yen, traders said.

The euro was little changed from late U.S. trade at $1.5731 EUR=, after rising to a one-month high above $1.5800 on Thursday. The single currency was flat against the Japanese currency at 163.70 yen EURJPY=.

The dollar was also nearly flat at 104.03 yen JPY=, after slipping below 103 yen the previous day. Traders said the dollar was supported at the lower end of its range by buying from Japanese retail investors and importers but resistance was firm around 105 yen due to Japanese exporter selling.

U.S. crude CLc1 pulled back sharply, ending Thursday down $2.36 at $130.81, after rising to a record high of $135.09.

Earlier this week, the Fed downgraded its 2008 U.S. economic growth forecast and raised its inflation outlook.

The Fed has cut interest rates to 2 percent from 5.25 percent since September, but markets now expect the central bank to hold steady and possibly raise rates by the end of the year.

Traders said they were waiting for the U.S. report on existing home sales due out later in the day for clues about the dollar's direction.

(Editing by Brent Kininmont)