FOREX-Euro hits 2-mth low vs dollar on euro zone worries

By Chikako Mogi

TOKYO (Reuters) - The euro slid to a two-month low against the dollar on Thursday as a sharp drop in euro zone retail sales raised worries about the region's economic outlook and revived expectations for eventual rate cuts.

The European Central Bank is expected to keep interest rates steady at 4 percent later in the day and repeat its concern over inflation, but traders said mounting signs of slowing growth suggested the ECB may lower rates before the end of the year.

But market players said it was too early to say whether the euro is set for a sustained decline after hitting a record against the dollar just two weeks ago.

The dollar was getting a boost from waning worries about the credit market crisis, as well as signs that other economies are starting to feel the impact from the U.S. slowdown.

Highlighting the fallout elsewhere, the New Zealand dollar slid more than 1 percent after data showing the country's biggest quarterly employment drop in 20 years stoked expectations for its central bank to start cutting rates later in the year. [nWEL1952]

"Markets are starting to feel more optimistic after having priced in the worst-case scenario," said a senior dealer at a Japanese trust bank.

"In contrast, negative factors are surfacing for the euro, with recent economic data showing weakness. The market is not yet fully seeing a turnaround, but is starting to incorporate such negative factors bit by bit," he said.

The euro fell to $1.5285 <EUR=> on trading platform EBS, the lowest since early March. It later trimmed some losses and was at $1.5306.