* Dollar hits seven-month high vs yen, at 108.84
* Fed rate stance seen supporting U.S. economy
* ECB expected to keep rates unchanged on Thursday
(Recasts, adds comments, changes dateline and byline)
By Vivianne Rodrigues
NEW YORK, Aug 6 (Reuters) - The dollar hit a seven-month
high against the yen on Wednesday as stable oil prices and
renewed expectations of low Federal Reserve interest rates were
seen as helping the sluggish U.S. economy.
Demand for the euro fell ahead of the European Central Bank
policy-makers meeting on Thursday.
The Fed Tuesday kept its benchmark federal funds rates
steady at 2 percent and signalled in a statement that it is in
no rush to push borrowing costs higher. The ECB is widely seen
holding its key lending rate Thursday at 4.25 percent.
"The U.S. economy is showing some signs of recovery and
oil prices falling do help," said Meg Browne, a currency
strategist at Brown Brothers Harriman in New York. "Going into
the end of the year and into 2009, the tip will be moving in
favor to the U.S. dollar."
In morning trading in New York, the dollar was 0.8 percent
higher at 109.19 yen <JPY=>, the highest since January,
according to Reuters data. The yen also fell against the euro,
as gains in European shares whetted investor appetite for
riskier assets, diminishing the Japanese currency's safe-haven
allure.
With the Fed meeting over, investors turned their attention
to ECB's policy views.
"Now the market's attention is shifting to the ECB meeting
tomorrow and (ECB President Claude) Trichet is likely to make
some pretty hawkish remarks," Browne said. "But he will also
have to acknowledge that economic data in Europe has been
pretty slow."
The euro may find some support before the rate decision,
analysts said, because of expectations that surging euro zone
inflation will lead Trichet to maintain his hawkish stance on
monetary policy.
Browne said that while the rate differentials between the
United States and Europe still favor the euro in the short
term, slowing growth in the euro zone will eventually lead the
ECB to cut borrowing costs.
The euro eased against the dollar, down 0.2 percent to
trade at $1.5410 <EUR=>, retreating from earlier gains.
A Reuters poll of 61 strategists taken Aug. 4-6 showed most
expect the euro to trade at around $1.54 over the next three
months, before retreating to $1.50 in six months and $1.44 a
year from now. For details, see []
With crude oil prices down over one-fifth from a record
above $147 a barrel in mid-July, and forecasts of zero growth
in the euro zone economy in the second quarter, the euro's peak
may well have been reached, the poll showed.
U.S. crude prices <CLc1> on Wednesday were stable, last
trading trading up 0.1 percent at $119.38 a barrel.
Demand for the euro fell as a report showed German
manufacturing orders for June dropped by a sharp 2.9 percent
and stoked fears of a sustained period of weakness in Europe's
biggest economy. []
"Demand from abroad is collapsing, especially in the euro
zone. The rest of the world is wobbling too, but not on the
scale of Europe," said Andreas Scheuerle, an economist from
DekaBank, in Berlin.
The dollar index <.DXY>, which tracks the U.S. currency's
movements against the currencies of major trading partners, was
0.4 percent higher at 74.223, recovering from an earlier slip.
(Additional reporting by Alastair Sharp in London; Editing by
Walker Simon)
