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Dollar index hits lowest since October, set for 7-day

losing

streak

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Euro rises to another four-month high

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Yen eases after hitting 5-month high

(Updates with early European trading)

By Yadarisa Shabong and Tom Westbrook

March 11 (Reuters) -

The euro scaled a new four-month peak against the dollar on

Tuesday on hopes a German defence spending deal could be struck

by the end of the week, while the dollar index slipped to its

lowest since October due to U.S. recession fears.

Germany's Greens Party co-leader Franziska Brantner said

in an interview with Bloomberg News that her party was ready to

negotiate to reach a deal for increased state borrowing to boost

defence spending and revive growth.

That lifted the euro to $1.09205 against the

greenback in early European trading, its highest since November.

It was last up 0.7%.

"Markets very much like that news and it really offers

counterpoint to yesterday's headlines," said Nick Rees, head of

macro research at Monex Europe.

On Monday, the common currency's gains were capped by

the Greens'

refusal

to back sweeping reforms to debt rules and a special 500

billion euro infrastructure fund, a move which could derail a

spending bonanza that had excited markets, and driven a steep

sell-off in German government bonds.

A weaker dollar only added to those gains.

'OVERREACTED'

Eyes were also on the broad dollar, after the Nasdaq

fell 4% overnight and the S&P 500 slid 2.7%.

"Historically, the dollar outperforms when we get a solid

rise in volatility, but when the U.S. economy and U.S. equity

market are the central point of concern, this is now limiting

the attractiveness of the dollar," said Chris Weston, head of

research at broker Pepperstone in Melbourne.

The dollar index, measuring the U.S. currency against six

peers, fell to levels last seen in October. It is on course for

its seventh-straight day of losses.

"We still think the hard data points to an economy

that's slowing but it's not slowing too fast. Recession fears is

very much overdone," Rees said.

"The markets have overreacted ... the dollar shouldn't

really be trading this weak," he said.

As U.S. bond yields have gone down and global yields

rose, the gap between 10-year U.S. and German yields

has shrunk nearly 40 basis points since a week ago

and the gap between U.S. and Japanese yields has

fallen nearly 20 bps.

The turmoil in equities was triggered by a Trump Fox News

interview, in which the president talked about a "period of

transition," dashing investor bets he would back away from his

aggressive policies.

The yen earlier made a five-month peak of 146.55 per dollar

before losing ground to trade at 147.45 a dollar.

In other currencies, the British pound gained 0.4%

against the dollar to $1.2928.

There were also sharp moves in Scandinavian currencies.

The Swedish crown firmed past the symbolic 10

crowns to the dollar level for the first time since December

2023 after Riksbank Governor

Erik Thedeen

said recent inflation outcomes in Sweden have been slightly

higher than expected and called for vigilance.

The dollar was last down 0.9% at 10.04 crowns, while the

euro was down 0.3% at 10.933 crowns

The Norwegian crown strengthened at

11.6270 to euro and 10.590 to the dollar, its strongest in five

months.