Euro above two-year high vs dollar

LONDON, June 24 (Reuters) -- The euro powered above $0.98 for the first time in more than two years on Monday as doubts over the appeal of U.S. assets and the strength of the U.S. recovery accelerated the dollar's losses across the board.

Even a bout of dollar-buying for yen by the Bank of Japan failed to halt downward momentum in the U.S. currency, which also hit 2-1/2 year lows against the Swiss franc and 17-month lows against sterling.

The dollar has shed six cents against the euro in the last month alone, and analysts say the psychological one-to-one level could be reached within weeks, or even days.

"It's just one way traffic,'' said a trader at a U.S. bank. "Breaking $0.96 last week was a massive level. There's no end in sight for now.''

Concern that the dollar's slide could harm Japan's export competitiveness prompted Japanese authorities to wade into the foreign exchange market to sell yen for dollars for the first time in three weeks.

Japan's action lifted the dollar more than a yen in Asian trade, but the greenback slipped back to 121.30 yen in Europe, little more than half a yen above seven-month lows set on Friday.

"Japanese authorities were forced to react to the strength of Friday's move,'' said Shahab Jalinoos, currency strategist at UBS Warburg.

"Global dollar weakness is a serious threat to Japan's economy but dollar sentiment is unlikely to improve until U.S. asset markets pick up.''

Dollar decline steepens

The dollar tumbled one percent to $0.9816 per euro and fell below 1.50 Swiss francs for the first time since October 1999.

It later rose back a little against the euro and at 0955 GMT was quoted at was $0.9785.

Dealers said the break of key chart levels had accelerated the dollar's decline, triggering a wave of automatic sell orders.

The dollar lost more than two percent against both the euro and the yen last week, registering its most dismal performance since August 2001, according to Reuters data.

"So far, market sentiment remains overwhelmingly dollar negative but the euro's gains may start to slow the closer we get to parity,'' said Neal Kimberley, manager at Bank of Tokyo Mitsubishi.

Traders said the dollar was still suffering from concerns over the growing U.S. current account deficit. This shortfall needs to be offset by foreign inflows into U.S. assets to prevent the dollar coming under downward pressure.

Last Thursday, the U.S. government said the current account deficit -- the broadest measure of trade with foreign countries

-- hit a record $112.5 billion in the first quarter of this year, up sharply from a revised estimate of $95.1 billion in the last quarter of 2001.

"The big problem for the dollar is the weakness of U.S. asset markets which means the United States will find it hard to finance their current account deficit,'' said Jalinoos at UBS Warburg.

"At the moment it is difficult to see any reason to buy the dollar, except for the fact that it has already fallen so far so fast.''