*

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

losing

streak

*

Euro rises to another four-month high

*

Yen eases after hitting 5-month high

(Updates with midday European trading)

By Yadarisa Shabong

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 helped lift the euro to $1.09205, its highest

since November. It was last up 0.6% on the day and has gained

more than 4% so far this month as Germany acts to ramp up

defence spending.

"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.

Euro gains were capped on Monday 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.

A broadly weaker dollar added to the euro's momentum.

'OVERDONE'

The dollar remained in focus after the Nasdaq fell

4% overnight and the S&P 500 slid 2.7% on U.S. growth

worries and tariff uncertainty.

"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 was set for a

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 fear 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 touched a five-month peak of 146.55 per

dollar before losing ground to trade at 147.585.

Britain's pound gained 0.4% to $1.2928, while

Scandinavian currencies also saw some sharp moves.

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 have been slightly higher than expected.

The dollar was last down 0.4% at 10.095 crowns, while the

euro steadied at 10.973 crowns.

Norway's crown strengthened to 11.6235

per euro and 10.669 to the dollar, its strongest in five months.