* Dollar index hits lowest since Sept 2008
* Euro hovers near 2009 highs as USD struggles
* Higher stocks, commodities support Aussie, kiwi
By Rika Otsuka
TOKYO, Sept 16 (Reuters) - The dollar struck a one-year low against a basket of currencies on Wednesday, staying vulnerable as investors moved to riskier assets such as stocks and commodities on growing signs of an economic recovery.
The dollar remained on the backfoot against the low-yielding yen as a steady drop in Treasury yields fuelled speculation the greenback was fast becoming the preferred funding currency for carry trades.
Investors increased bets on stocks and commodities, encouraged by better-than-expected U.S. retail sales and New York manufacturing data, while Federal Reserve chairman Ben Bernanke said the U.S. recession was most likely over, though he also warned the recovery would be slow.
"Market players feel comfortable about doing dollar carry trades as Bernanke said the U.S. economy has hit bottom, while global central banks are unlikely to end emergency steps anytime soon," said Tsutomu Soma, a senior manager of foreign securities at Okasan Securities.
The dollar index, which measures the dollar's value against a basket of six major currencies, fell to a one-year low of 76.406 before inching up to 76.475, down 0.1 percent on the day.
The index has shed more than 2 percent this month, below any Fibonacci support, and could fall to 2008 lows of around 70.70.
The euro edged up 0.1 percent from late U.S. trade to $1.4670, in sight of its 2009 high of $1.4686 struck on trading platform EBS the previous day.
The dollar dipped 0.1 percent to 90.95 yen, staying above a seven-month trough of 90.18 touched earlier this week.
"As the global recovery continues and risk diversification takes place we could see the U.S. dollar stay under pressure for the next six months," said Amber Rabinov, economist, foreign exchange and international economics at ANZ in Sydney.
"We expect it to test its recent lows on the yen, and probably fall as low as 87 yen as talk of it replacing the yen as a funding currency gathers momentum."
Until recently, the low-yielding yen was the currency of choice for investors who borrow cheap to buy riskier assets or high-yielding currencies. But with 3-month U.S. LIBOR rates falling below Japanese rates, the dollar is replacing the yen as the funding currency of choice.
But in the near-term, traders said the dollar might have limited scope to slide against the yen and that it is likely to rebound quickly even if it falls below the key psychological 90 yen mark as many options barriers are in place below that level.
CHANGE IN JAPAN'S GOVERNMENT
Democrat Yukio Hatoyama is set to take office as Japan's new prime minister and is expected to announce his cabinet members later in the day. Hatoyama has pledged to put more money in the hands of consumers, cut wasteful spending and reduce bureaucrats' control over policy-making.
Although the change in the government is not expected to cause much volatility in exchange rates, traders said caution towards a higher yen persists as veteran lawmaker Hirohisa Fujii is expected to become finance minister.
Fujii told Reuters in an interview earlier this month that Tokyo should not step into forex markets unless exchange rates move abnormally, and that a strong yen is good for Japan as it curbs import costs.
Also in focus will be a slew of U.S. data to be released later in the day. The U.S. consumer price index (CPI) for August, second-quarter current account data, August industrial production numbers and September NAHB housing data are all due.
Of these, CPI and industrial production have the biggest potential to move markets.
Sterling was steady at $1.6487 after being slugged by Bank of England Governor Mervyn King's rather downbeat comments on the UK economy. King said on Tuesday the BoE could cut the interest rate it pays on commercial banks' deposits, warning full recovery from Britain's recession would be slow..
The Australian dollar inched up 0.1 percent to $0.8644 while the New Zealand dollar was at $0.7049, little changed from late U.S. trade on Tuesday. (Additional reporting by Anirban Nag in Sydney; Editing by Joseph Radford)