NEW YORK CITY (AFP) - The euro fell sharply against the dollar for a second day on Friday amid rising speculation that the European Central Bank could move to cut interest rates to counter falling inflation.

At 2100 GMT (5am, Singapore time), the euro was at US$1.3482, down from US$1.3579 late Thursday. It was above US$1.3750 in Wednesday's trade.

The euro also lost ground to the yen, falling to 133.10 yen from 133.60.

The dollar rose to 98.69 yen from 98.37.

"The sharp drop in eurozone consumer price inflation to 0.7 percent in October means that a European Central Bank interest rate cut from 0.50 per cent to 0.25 per cent is now a very real possibility at its 7 November policy meeting," Mr Howard Archer, chief european economist at IHS Global Insight, said in a market note.

Mr Archer said the decision could be put off to wait for fresh data on growth and inflation from its staff, but argued the rate cut - which would put the benchmark euro rate at the same level as the Fed's key dollar rate - would come by year-end.

"An interest rate cut could also exert some welcome downward pressure on the euro, which hit a 23-month high against the dollar earlier in October, which is not helpful for euro zone export and recovery prospects," he added.

The British pound fell to US$1.5923 from US$1.6033, while the dollar rose to 0.9117 Swiss franc from 0.9069 franc.