LONDON - THE US dollar renewed its broad rally yesterday, lifted to its highest for the year, against a basket of currencies by another dip in commodities prices and ongoing worries about slowing global economic growth.

Falling share prices, another wave of concern over the global financial system and tightening strains in money markets are all feeding the view that the United States will not be the only one to suffer weak growth and fragile asset markets.

The latest dip in commodity prices - oil slipped below US$112 a barrel and metals came under pressure - lightens inflationary pressures, thus paving the way for central banks around the world to cut interest rates.

The central banks most likely to cut rates in the coming months are those in Europe, Australia and New Zealand, thus putting downward pressure on their currencies versus the dollar.

But one central bank likely to keep rates on hold for some time, as it did on Tuesday, is the Bank of Japan.

'The strength in the dollar index has little to do with dollar strength but more the weakness of the other currencies,' said Mr Michael Klawitter, senior currency strategist at Dresdner Kleinwort in Frankfurt.

'The market's focus is just very one-sided. At the moment the market has decided to focus on the weakness of the euro zone and hasn't taken a balanced view of risks in the US,' he said.

At 0745 GMT (3.45pm Singapore time) yesterday, the euro was down 0.3 per cent on the day at US$1.4650, having earlier in the day hit a six-month low of US$1.4631, according to Reuters data.

The dollar index, which measures the greenback's value against a basket of six currencies, rose 0.3 per cent to 77.293, earlier hitting a new high for the year of 77.413.

The dollar retreated 0.1 per cent against the yen to 109.95 yen, dragged lower by the euro's near 0.5 per cent fall against the Japanese currency to 161.10. yen.

European shares fell more than 1 per cent in early trade yesterday, following the decline in Asian shares to two-year lows and a sharp slide on Wall Street on Monday.

Renewed concerns that the US Treasury might have to bail out loss-incurring mortgage giants Fannie Mae and Freddie Mac, on top of a 7 per cent fall in Lehman Brothers on fears of heavy third- quarter losses, suggest all is not well in the US financial system.

London interbank offered rates (Libor) for dollars are also rising.

But in foreign exchange markets, it is currencies other than the dollar that are feeling the heat from the US banking and economic worries.

'The focus seems to have shifted away from the US to the rest of the world, with the idea that while things in the US may be bad they are likely nearing a bottom, while in the rest of the world things are just about to deteriorate,' said Mr Ian Stannard, senior currency strategist at BNP Paribas in London. -- REUTERS