FOREX-U.S. dollar sinks to lifetime low versus euro

(Recasts, updates prices, adds comment)

By Vivianne Rodrigues

NEW YORK, Sept 20 (Reuters) - The dollar tumbled to a record low against the euro on Thursday and reached parity with the Canadian currency for the first time in 31 years on expectations of more cuts in U.S. interest rates after this week's sharp reduction.

The sell-off started in Europe and continued later in the day in New York as investors and analysts concluded lower benchmark rates in the world's largest economy will hurt the return on dollar-denominated assets, diminishing the greenback's appeal.

Against the euro, the dollar breached the key $1.40 level and almost touched $1.41 at around noon in New York <EUR=>. The euro zone single currency also rose above 70 pence against sterling <EURGBP=> for the first time in one and a half years.

Also on Tuesday, the Canadian dollar briefly reached parity with the U.S. dollar <CAD=> for the first time since 1976, supported by lofty commodity prices, a strong domestic economy and concerns about the U.S. economic slowdown.

The Federal Reserve on Tuesday slashed rates for the first time in four years by a half percentage point to 4.75 percent to shield the U.S. economy from a deepening housing slump and credit market turbulence.

"People are convinced the Fed will have to cut by more than 50 basis points," said Matthew Strauss, senior FX strategist at RBC Capital Markets, in Toronto. The dollar's sell-off "is a continuation of selling seen after the Fed's rate cut, and with the dollar index closing in on all-time lows, people are looking for reasons to target that level."

Remarks by Fed chief Ben Bernanke before a Congressional committee had limited impact.