Euro struggles in face of shrinking European econs

[NesmithDJ]

* Euro struggles as euro zone economies shrink; at $1.4910

* GDP in focus: Germany, France both contract in Q2

* U.S. CPI up later: core seen +0.2 pct

By Jamie McGeever

LONDON, Aug 14 (Reuters) - The euro came under heavy selling pressure on Thursday, as figures showing contraction in the euro zone's two largest economies bolstered investors' increasingly gloomy view of global growth and helped support the U.S. dollar.

Germany and France both contracted in the second quarter, which should confirm broader economic contraction in the 15-nation bloc and likely raise the spectre of recession in Europe.

This comes in a week in which the Bank of England issued a surprisingly pessimistic outlook for the UK economy, official figures showed Japan's economy shrank in the second quarter and Australia's central bank said it wouldn't wait for inflation to fall before cutting interest rates.

The deterioration in global growth has stoked expectations central banks around the world will cut rates sooner or later, thereby reducing the yield advantage many currencies such as the euro and sterling currently enjoy over the U.S. dollar.

Weak growth and subsequent rate differentials now appear to be the driving factor in determining exchange rates, more so than oil prices, equity markets or financial market tensions.

"You come out with a weak (GDP) number and you get shot. That's the way the market's working now," said David Bloom, head of global currency strategy at HSBC.

"Inflation is just so yesterday. It's all about growth. That's the flavour," he said.

Still, rising oil and commodity prices on Thursday did limit the dollar's upside, traders said.

At 0800 GMT the euro was off 0.1 percent at $1.4910 <EUR=>, having spent much of the global session under $1.49.

The dollar index -- a measure of the dollar's value against six major currencies -- was flat at 76.22 .DXY.

The dollar was steady against the Japanese currency at 109.45 yen <JPY=>.

Sterling was flat against the dollar at $1.87 <GBP=>, having fallen as low as $1.8617 earlier in the global session, a level not seen for almost two years.

GROWTH OVER INFLATION

Official figures on Thursday showed that the French economy contracted by 0.3 percent in the second quarter, compared with predictions of 0.2 percent expansion.

Germany, the euro zone's economic powerhouse, shrank by 0.5 percent, not quite as much as the 0.8 percent contraction analysts had expected.

Still, taken together, the outlook for the euro zone economy isn't a bright one. Data at 0900 GMT is expected to show a 0.2 percent contraction in the second quarter. See [ECON].

While the U.S. economy is hardly cause for unbridled optimism, even accounting for encouraging exports and trade data, currency investors continue to give the dollar the benefit of growing global doubt.

"The euro is in the firing line today given the likelihood that euro-area Q2 GDP numbers will not give much cause for comfort," said Societe Generale strategists in a note.

"In contrast to the euro, the dollar continues to show resilience of late, clocking up gains against its G10 counterparts. Any ease in today's inflation figures is likely to give cause for comfort," they added.

Official data at 1230 GMT are expected to show underlying U.S. consumer price inflation at 0.2 percent in July, easing slightly from a 0.3 percent increase the previous month.