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FOREX-Dollar soars to multi-month highs, cements upswing

(Changes byline, updates prices)

* Euro falls to five-month low vs dollar around $1.51

* Pound hits 17-month low, dollar flirts with 110 yen

* Some analysts say long-term dollar recovery under way

By Jamie McGeever

LONDON, Aug 8 (Reuters) - The dollar surged on Friday, firmly on track for its biggest weekly rise in 3-1/2 years as fears intensified that the U.S. economic slowdown is spreading around the world.

Most major currencies, including the euro, sterling and Swiss franc, fell 1 percent or more against the greenback, which some analysts suggest may finally be emerging from its broad downtrend that has lasted almost seven years.

On Thursday, European Central Bank President Jean-Claude Trichet highlighted the increasing risks to euro zone growth, Japan’s government said the country’s economy may be in recession, and one closely-watched measure of British house prices showed the biggest monthly fall in July on record.

Coupled with outright dollar-supportive developments such as a surprising rebound in U.S. home sales Thursday and continued decline in oil prices Friday deeper into technical “bear market” territory, the greenback soared.

Despite the continued fragility of the U.S. financial and housing sectors, the near-term technical picture for the euro and other currencies has deteriorated so quickly that further declines against the now-rampant dollar may be on the cards.

“The contagion is now going global. The data is manifesting itself in economies around the world,” said Neil Jones, head of hedge fund FX sales at Mizuho in London.

“The contagion trade is very much factored into the dollar, but not for other economies.”

At 1145 GMT the euro down 1.4 percent on the day at $1.5105 EUR=, a five-month low and down nearly 10 cents from its high hit last month above $1.60.

It fell below major technical support to below its 200-day moving average at $1.5225. It hasn’t closed below this technical level since March 2006.

The dollar rose 1.2 percent against a basket of currencies to 75.42 .DXY, its strongest since late February. It is up almost 3 percent on the week, the biggest rise since the first week of January, 2005.

Sterling slid 1 percent to a 17-month low of $1.9217 GBP=, while the dollar gained as much as 0.4 percent against the yen to 109.95 yen, its highest since January JPY=.

LONG-TERM DOLLAR TURNAROUND?

The dollar has recovered a lot of ground since the oil price tumbled from its peak of over $147 a barrel CLc1 last month to around $117 but the moves over the last 24 hours have been pretty staggering.

Investors interpreted Trichet’s comments on Thursday, after the ECB left interest rates on hold at 4.25 percent, as a signal policymakers were becoming increasingly concerned with the bleak growth outlook, potentially paving the way for lower rates.

Preliminary data on Friday showed that Italy’s economy contracted in the second quarter, and economists think figures next week will show Germany’s economy shrinking at an even faster rate [ECON].

The heavy euro selling has soured the currency’s technical outlook.

Given the confluence of factors -- dire growth prospects outside the United States, major technical reversals, long-term money managers maybe revising their outlook on the dollar -- some analysts say this dollar move could be significant.

“The dollar is, in my view, in a genuine recovery. This trend could run further than many think,” said Stephen Jen, global head of currency strategy at Morgan Stanley in London.

Meanwhile, the Canadian dollar fell to a one-year low against the greenback after data showed the highest Canadian job losses in July in over 17 years. See [ID:nN08368701].

The U.S. dollar rose over 1 percent to C$1.0679 CAD=.

The New Zealand dollar was among the biggest losers, falling 2 percent to as low as $0.6985 NZD=.

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