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NEW YORK, July 2 (Reuters) The dollar slumped to a seven-week low against the euro and fell against other major currencies as U.S.

housing sector weakness reinforced views that U.S. interest rates would remain relatively steady while borrowing costs rise overseas.

The dollar fell to within one cent of a record low against the euro, extending heavy losses made on Friday after soft reports on U.S. consumer price inflation and personal income and spending.

Concerns about the U.S. subprime mortgage market -- amplified over the past week by trouble at two Bear Stearns-managed hedge funds -- have also dented investors' appetite for risk.

''Basically we are seeing a continuation of dollar selling after the soft data we saw last week,'' said Boris Schlossberg, senior currency strategist at DailyFX.com in New York. ''It all dovetails into the theme that the ECB and BoE are going to be much more aggressive raising rates than the Fed.'' In a shortened week in the United States due to the July 4 holiday, investors were looking ahead to a survey on the health of the U.S. manufacturing sector in June from the Institute for Supply Management, due at 10 (1400 GMT).

The euro was up 0.5 percent at 1.3603 in early U.S. trade, in sight of a record high just above $1.3680 hit in April. The dollar was down 0.5 percent at 122.55 yen .

Sterling hit a 2-1/2-month high versus the dollar at $2.0130 , inching towards a 26-year high ahead of a widely expected Bank of England rate hike to 5.75 percent on Thursday.

The European Central Bank is also expected to raise interest rates in coming months, reducing the relative allure of the dollar at a time when the Federal Reserve is expected to keep U.S. interest rates on hold this year.

REUTERS SR GC1954