Dollar stays near record low vs euro in quiet trade

TOKYO, May 1 (Reuters) - The dollar stayed near a record low against the euro on Tuesday after data the previous day supported expectations that the Federal Reserve will cut interest rates later this year.

Activity in Asia was light as most financial markets in the region outside Japan were closed for national holidays on Tuesday.

Many markets in Europe are also shut on Tuesday.

Benign inflation data and modest growth in Midwest business activity provided more evidence of slowing U.S. economic growth, keeping sentiment bearish for the dollar, traders said.

On Friday, a report showing first-quarter U.S. gross domestic product grew at its slowest pace in four years helped push the euro to the highest level since its 1999 launch against the dollar.

The euro is also hovering near a lifetime high against the yen on expectations that the European Central Bank will further raise interest rates in coming months.

In Japan, a larger-than-expected drop in March core consumer prices released on Friday reinforced expectations that the Bank of Japan will raise interest rates only gradually.

''There have been no changes in the situation that the euro is the sole winner among the euro, dollar and yen trio,'' said a trader at Japanese trust bank.

The euro was at $1.3645 little changed from late U.S. trade on Monday. The single currency climbed to an all-time peak of $1.3683 on electronic trading platform EBS on Friday.

The euro has risen more than 2 percent against the dollar in April, the largest increase since November.

The euro was flat at 163.10 yen staying within striking distance of its record peak of 163.29 yen hit on Friday.

The dollar barely budged at 119.50 yen The Bank of Japan on Friday downgraded its forecast of core inflation in its twice-yearly outlook report to just a 0.1 percent rise in the fiscal year that began in April and also kept overnight rates on hold at 0.5 percent.

The Australian dollar fell slightly against the dollar to $0.8294 as modest profit-taking set in following its gains on the back of Monday's tame U.S. inflation data.

Australia's central bank is widely expected to keep rates steady on Wednesday, while markets are still pricing in a little less than 50 percent chance of a 25-basis-point rate rise to 6.5 percent over the next 12 months.

The Aussie hit a 17-year high of $0.8390 last month.

US DATA AWAITED Investors expect the Fed will cut interest rates from the current 5.25 percent level at least once before the year ends, compared with forecasts for higher rates in the euro zone, Britain and elsewhere.

That combined with recent data pointing a slower pace of U.S.

economic growth has encouraged investors to sell the dollar.

Investors will look to the Institute for Supply Management manufacturing index for April at 1400 GMT for more clues on the health of the U.S. economy, traders said.

Economists expect a median reading of 51.0, compared with 50.9 in March.

''It's not that easy to turn around the downward trend in the dollar with some solid data as so many market players now chase the currency lower,'' said Hiroki Shimazu, a market economist at Mizuho Securities.

Unless Friday's closely watched employment data surprises the market with strong figures, the dollar will keep its weak tone, Shimazu said.

Economists expect a gain of 100,000 jobs in April, well below an increase of 180,000 in March.

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