* Dlr index on course for best week in 3 yrs ahead of G8
* Dollar has best week against yen in four years
* Investors seek clues on potential G8 FX impact
NEW YORK, June 13 (Reuters) - The dollar headed for its
best weekly performance in over three years against a basket of
currencies on Friday ahead of this weekend's G8 meeting, helped
by U.S. inflation data that raised expectations of higher U.S.
interest rates.
The U.S. currency benefited strongly this week as the
government and Federal Reserve focused on inflation and its
impact on the dollar.
A government report on Friday that showed soaring gasoline
and energy prices driving up U.S. consumer prices during May by
the fastest rate since November only added to the dollar's
attraction. For more details, click [].
Higher rates bolster the appeal of dollar-denominated
securities and raise demand for the dollars to buy them.
"The headline number supports the recent expectations that
the Federal Reserve is going to hike rates," Ken Landon, global
currency strategist at JP Morgan Chase in New York, said of the
inflation report. "Big picture, this supports a strong
dollar."
Midway through the New York session, the euro was down 0.8
percent on the day at $1.5325, having hit a one-month low at
$1.5304<EUR=>.
The dollar index jumped 0.2 percent to near a four-month
high of 74.314 before retreating to 74.032. It remained up 2.6
percent on the week, heading for its biggest weekly percentage
gain since January 2005 <.DXY> at current prices.
The dollar also hit a near-four-month high of 108.38 yen
<JPY=> before paring its gains to trade at 109.91 yen. For the
week, the dollar is up 3.2 percent against the yen, poised for
its biggest weekly gain in more than four years.
The Bank of Japan kept interest rates steady at 0.5 percent
on Friday, as widely expected.
The euro has lost around five cents against the dollar
since Monday as European Central Bank policy-makers have
dampened expectations for a series of rate hikes after flagging
a possible rise in July from the current 4 percent.
The euro was also pressured by Irish votes rejecting the
European Union's Lisbon treaty, putting plans to overhaul the
bloc's institutions in peril. [].
G8
Dollar momentum could be boosted further if U.S. Treasury
Secretary Henry Paulson and other finance ministers attending
the Group of Eight finance ministers meeting in Japan issue
dollar-supportive comments.
(For ANALYSIS on implications of the G8 meeting on the
currencies, click on [].)
The Group of Eight nations will communicate that high
commodity prices are threatening growth and increasing
inflationary pressures after their meeting on Saturday, a
source from the rich nations club said on Friday.
[].
The euro took an early hit on Friday after French Economy
Minister Christine Lagarde said on arriving in Japan that the
recent strengthening of the dollar was "satisfying" and that
currencies will be discussed, according to media reports.
[].
Japanese Finance Minister Fukushiro Nukaga said he had
discussed currencies with Paulson.
Paulson said earlier in the week he would never rule out
currency intervention as a potential policy tool to stem the
dollar's slide, giving the U.S. currency a boost, though some
analysts cautioned investors may have read too much into
Paulson's words.
His comments came after Fed Chairman Ben Bernanke last week
surprised the market with a rare warning that a weak dollar was
adding to price pressures, signaling to investors a shift in
Washington's view on the dollar.
Market players will look to the language of the communique
published at the end of the G8 meeting to gauge the likelihood
of any action from central banks.
"We believe that there could be stronger language on FX in
the communique but it is likely to stop short of indicating
that intervention is likely, which could still be enough to
boost the dollar," Calyon strategists said in a note to
clients.
In other economic news, the Reuters/University of Michigan
Surveys of Consumers showed U.S. consumer confidence tumbled
more than expected in June, hitting another 28-year low as high
inflation and rising unemployment weighed on sentiment. The
report had fleeting impact on trading.
"There was chatter about a weaker number coming in and it
looks like the whisper number had it about right," said Shaun
Osborne, senior currency strategist at TD Securities in
Toronto. "That's why the reaction has been mild."
(Reporting by Nick Olivari, additional reporting by Gertrude
Chavez-Dreyfuss and Steven C. Johnson in New York and Veronica
Brown in London; Editing by Dan Grebler)
