* Financial sector woes boost dlr as investors seek safety
* AIG posts record qtrly loss; new $30 bln U.S. govt aid
* Dollar index at 3-yr high; euro down 0.8 percent vs dlr
* HSBC sinks on rights issue; euro zone inflation rises
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By Tamawa Desai
LONDON, March 2 (Reuters) - The dollar rose on Monday as financial woes prompted investors to seek the perceived safety of U.S. dollar assets as insurer American International Group posted a big loss amid U.S. government aid for the ailing firm.
AIG announced a $61.7 billion fourth-quarter loss, the largest quarterly loss in U.S. corporate history.
Earlier, the U.S. Treasury and Federal Reserve said the firm would get up to $30 billion as part of a new government rescue bid, as widely expected. Concerns about the financial system prompted the dollar to hit a three-year high versus a basket of currencies.
The news about AIG also put further pressure on European shares, which fell nearly 4 percent by late morning trade led downwards by HSBC, as the bank unveiled a big rights issue to raise funds.
"We see demand for U.S. dollars," said Maurice Pomery, head of FX at IDEAGlobal.
By 1224 GMT, the dollar index was up 0.7 percent at 88.612 after rising as far as 88.956, its highest level since April 2006.
The euro fell 0.8 percent against the dollar to $1.2565. Sterling hit a one-month low of $1.4066 while the Australian dollar lost 1.0 percent to $0.6330.
The euro was also hurt as a summit of European Union leaders on Sunday rejected a mass bailout of countries in eastern Europe.
Hungary led calls for a 180 billion euro aid package to rescue east European economies whose currencies have been battered by the economic downturn, but EU leaders agreed only to look at helping countries on a case-by-case basis.
"There's a roll call of reasons to stay risk averse -- the news from AIG, HSBC and worries about eastern Europe and that is benefitting the dollar," UBS currency strategist Geoffrey Yu said.
Data on Monday showed euro zone manufacturers had their worst month in 12 years, with the Markit's euro zone manufacturing purchasing managers' index falling to a record low of 33.5 in February from 34.4 the previous month. That was lower than the flash reading of 33.6, also the consensus forecast.
Separate data showed euro zone inflation rose to a 1.2 percent gain year-on-year in February, after a 1.1 percent gain in January.
But given that inflation remained well below the European Central Bank's target of just below two percent, analysts still expect the ECB to cut rates by 50 basis points to 1.5 percent on Thursday.
Elsewhere, the yen rose broadly, particularly against currencies other than the dollar as investors considered that the recent losses in the currency in the wake of grim Japanese economic data may have been overdone.
The dollar fell 0.2 against the yen to 97.25 yen, while the euro was down 1.1 percent at 122.19 yen.
"Sentiment is still negative towards the yen, but at the same time the market may have got ahead of itself in terms of short-term positioning," UBS' Yu said. (Additional reporting by Jessica Mortimer; Editing by Andy Bruce)