FOREX-Dollar extends rally to five-month high; euro weak


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    * Reports Italian parties seeking debt forgiveness hits euro
    * Emerging markets currencies face renewed selling pressure

 (Recasts, updates rates, adds new comments, changes dateline
from LONDON)
    By Saqib Iqbal Ahmed
    NEW YORK, May 16 (Reuters) - The dollar extended its rally
against a basket of currencies on Wednesday to touch a
five-month high, supported by relatively strong U.S. economic
data in recent days, while the euro was hit by reports that a
likely future Italian government would seek debt forgiveness
from European creditors.
    The dollar index  .DXY , which measures the greenback
against a basket of six other currencies, was up 0.14 percent at
93.352, after rising as high as 93.632, its highest since
December 19.
    The greenback has risen about 1.6 percent this month,
boosted by a view that the Federal Reserve will outpace most
major central banks in policy normalization.
    "There's been some improved sentiment on conditions in the
U.S. compared with other parts of the world," said Sireen
Harajli, foreign exchange strategist at Mizuho in New York.
    U.S. factory output rose in April, although new estimates of
manufacturing and overall industrial production showed less
growth in prior months than initially believed.*:nFOMGGEE1P
    The U.S. currency got a boost on Tuesday when strong U.S.
consumer spending numbers sent 10-year Treasury yields
 US10YT=RR  surging to a seven-year peak of 3.095 percent. 
    Euro zone inflation slowed in April, European statistics
agency Eurostat said on Wednesday, confirming an earlier flash
estimate and adding to the headache of European Central Bank
policy makers seeking to phase out monetary stimulus.*:nL5N1SN2MW
    Japan's economy contracted more than expected at the start
of this year, suggesting growth has peaked after the best run of
expansion in decades, unwelcome news for a government struggling
to get traction for its reflationary policies.*:nL3N1SM38M
    "Essentially, the dollar is stronger mostly because the rest
of the world is not," said Harajli.
    The euro was 0.25 percent lower against the greenback at
$1.1807, its lowest since December, after reports that Italy's
anti-establishment 5-Star Movement and anti-immigrant League may
ask the European Central Bank to forgive 250 billion euros
($294.18 billion) of debt.*:nL5N1SMA1R
    "The reaction that we saw in the market definitely reflects
the investor sentiment about that," she said.
    The euro was 0.4-percent lower against the Swiss franc,
after dropping to a five-week low of 1.1772 francs  EURCHF= .
The Swiss franc typically attracts capital in times of
    Against the yen, the dollar was down 0.11 percent at 110.22
yen, but still close to the highest it has been since early
    Emerging market currencies suffered more losses on Wednesday
with the dollar's rise, although the Turkish lira  TRYTOM=D3 
pulled back from record lows after the central bank said it
would intervene to stop its slide.*:nL5N1SN2PE*:nL5N1SN2JC
    Sterling fell towards its lowest point of the year against
the dollar amid fresh worries about Britain's Brexit
negotiations and relatively modest UK wage growth, but pared
losses to trade little changed on the day at $1.3495.*:nL5N1SN2SZ

Graphic: World FX rates in 2018
 (Reporting by Saqib Iqbal Ahmed
Editing by Nick Zieminski)
 ((; @SaqibReports; +1 646 223
6054; Reuters Messaging:

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