FOREX-Dollar index on track for monthly gains on Fed lift-off expectations

* Investors likely to look past U.S. revised GDP data

* Greek uncertainty keeps euro gains capped

* New Zealand dollar hits lowest since Sept. 2010

By Anirban Nag

LONDON, May 29 (Reuters) - The dollar index steadied on Friday and was set to resume a monthly winning streak after a break in April, with investors likely to look past soft first-quarter U.S. growth numbers after recent activity data pointed to a more sustained recovery.

That, along with higher core inflation, has kept alive expectations that the Federal Reserve will lift U.S. interest rates later this year.

Revised gross domestic product data is expected on Friday to underscore that the U.S. economy stalled in the first quarter of the year.

But data on Thursday, particularly upbeat home sales, reinforced the view the economy was recovering from weather-related problems and the Fed was still on track to raise rates, boosting the dollar.

Traders said the Chicago Purchasing managers' index for May and the final University of Michigan consumer sentiment for May could print above consensus and boost the dollar.

The dollar index was steady at 97.023, with the greenback slight lower against the euro but at a three-week high against the British pound and flat against the yen. For the month, the index is up 2.5 percent, having shed 3.8 percent in April.

"Unless the growth data is revised to a show a contraction of 1 percent, the market will not be too surprised," said Jeremy Stretch, head of currency strategy at CIBC World Markets. "Any dip in the dollar will be a good entry level to go long, given we are still expecting some good payrolls numbers next week."

Stretch expected the dollar to rise towards 125 yen in coming days, although a flurry of comments from Japanese policymakers made investors cautious.

Traders cited a warning from Japanese Finance Minister Taro Aso as a factor behind the dollar's move away from Thursday's high of 124.46 yen. That was a 12-1/2 year peak for the dollar which was last trading at 123.90, flat on the day.

Aso told reporters in Germany that the yen's weakness has been "rough". But Japanese Economics Minister Akira Amari said on Friday the pace of yen declines could not necessarily be described as excessive.

The euro edged up to $1.0965, though investors sold it at higher levels amid ongoing worries about Greece's finances as the finance ministers and central bank chiefs of the Group of Seven countries met.

"With little progress currently being made on the key issues, the prolonged uncertainty is likely to keep the euro under selling pressure, in our view," Morgan Stanley said in a note.

The New Zealand dollar fell to $0.7107, its lowest since Sept 2010 after a survey showed business confidence tumbling, adding to speculation of a rate cut as early as June.

(editing by John Stonestreet)

Advertisement