*

Euro rises to four-month high vs US dollar

*

Dollar index hit a near four-month low

*

China announces more fiscal stimulus to boost consumption

*

US economic numbers are mixed

*

Focus on ECB rate policy decision on Thursday

(Adds new comment, US data, updates milestones, prices)

By Gertrude Chavez-Dreyfuss

NEW YORK, March 5 (Reuters) - The euro hit four month

highs on Wednesday against the U.S. dollar, as Europe's growth

prospects improved after Germany's proposed 500-billion euro

($531 billion) infrastructure fund, potentially offsetting

global trade tensions.

The single currency is up nearly 3.7% this week,

already on track for its best week since November 2022, taking

another leg higher after a late Tuesday announcement from the

parties hoping to form Germany's next government of the planned

new fund and an overhaul of borrowing rules.

It rose to its highest since November 8 against the dollar

was last up 1.3% at $1.0765. The euro also gained against other

currencies, including the British pound, the Japanese yen and

the Swiss franc, .

"By launching a 500-billion euro investment fund and working

to reform the country's overly-restrictive debt brake, German

leaders are taking steps that could reinvigorate growth at the

core of the euro project, help reverse a long decline in

underlying economic infrastructure, and establish a strong

bulwark against Russia's westward expansion" said Karl

Schamotta, chief market strategist, at Corpay in Toronto.

"Traders are reacting with unbridled optimism, bidding

the euro up against all of its major counterparts."

The dollar index, the reverse proxy for the euro being the

largest component of the index, fell more than 1% at 104.45

and hit its lowest since November 8 as well.

Lee Hardman, senior currency analyst at MUFG, cautioned

however about the downside risks for the euro from U.S.

President Donald Trump's tariff threats, saying early April will

be a key "crunch point" for Europe's economy.

Germany's bond yields surged as investors digested the

additional borrowing expected to back the debt overhaul, with

30-year yields jumping as much as 25 basis points at

one point. Short term yields also rose, boosting the euro

against the dollar.

Also in the mix, the ECB is expected to cut interest rates

on Thursday, with more to follow as it tries to prop up weak

economic growth. If fiscal stimulus by Europe's biggest economy

supports growth, it would reduce pressure on the ECB to cut

rates more aggressively and is a "positive shock" for the euro,

Hardman added.

Other European currencies also rallied against the dollar,

with sterling rallying to a four-month peak of $1.2871

and last traded up 0.5% at $1.2862. Against the Swiss franc, the

dollar was slightly higher on the day at 0.8899 franc.

Sweden's crown, sensitive to European equities, particularly

defense stocks, continued its recent rally, and was at its

strongest on the dollar in five months. The dollar was last down

1.4% at 10.267 crowns, and the euro was 0.3% lower at

11.03 crowns.

TARIFFS

It was not just European developments that were boosting the

euro, pound and franc against the dollar, however, as signs of

slowing economic growth in the United States, partly as a result

of uncertainty about tariffs, hurt the U.S. currency.

The dollar fell 0.7% against the yen to 148.74

On Tuesday, Trump vowed again reciprocal tariffs from April

in his first speech to Congress since taking office.

His 25% tariffs on imports from Mexico and Canada took

effect on Tuesday, along with a doubling of duties on Chinese

goods to 20%, and Canada and China quickly acted in kind, while

Mexican President Claudia Sheinbaum vowed retaliation but did

not provide details.

Currency traders are still struggling to assess whether the

tariffs will be permanent or if they are negotiable. The

Canadian dollar steadied to C$1.4394 to the dollar,

well off the C$1.479 to which it weakened a month ago when

tariffs were first mooted.

U.S. economic data on Wednesday was mixed, with private

payrolls slowing sharply last month, while the service sector

expanding as price growth accelerated.

Private payrolls

increased by only 77,000 jobs

last month after an upwardly revised 186,000 gain in

January. Economists polled by Reuters had forecast private

employment rising 140,000 following a previously reported

183,000 advance in January.

U.S. services sector growth, meanwhile,

unexpectedly picked up

in February and prices for inputs increased. The Institute

for Supply Management's (ISM) non-manufacturing purchasing

managers index (PMI) climbed to 53.5 last month from 52.8 in

January. Economists polled by Reuters had forecast the services

PMI dipping to 52.6.

In Asia, China pledged more fiscal stimulus on Wednesday,

signalling greater efforts to boost consumption to protect

economic growth amid heightened trade tensions with the United

States. Policymakers set this year's GDP growth goal at roughly

5%, as expected.

The offshore yuan edged up 0.2% to 7.2639 per

dollar.

The China-sensitive Aussie, traded 0.6% higher at

US$0.6307, also boosted by upbeat domestic data.