* Euro remains vulnerable to Greece worries
* Declines in equities, commodities add to risk aversion
* Sterling rises vs euro after BOE inflation forecast (Updates prices, adds details)
By Wanfeng Zhou
NEW YORK, May 11 (Reuters) - Renewed worries about Greek debt and another sell-off in the commodities market drove the euro sharply lower on Wednesday, with more losses likely as investors grow skittish over the currency's sudden retreat.
The euro zone common currency dropped to a three-week low against the U.S. dollar, firmly breaking below its 50-day moving average around $1.43, which traders are likely to take as a sign of more losses to come.
The euro's drop, just a week after it hit a 17-month high versus the dollar above $1.49, accelerated after steep losses in stocks and commodities led to a stampede for the safe-haven dollar.
Speculation over whether Greece will receive more bailout funding kept risk appetite volatile as investors continued to price in a high probability that the country will eventually need to restructure its debt.
"It's a combination of renewed concern about peripheral Europe and positioning that's leading to this bout of risk aversion," said Paresh Upadhyaya, head of Americas G10 FX Strategy at BofA Merrill Lynch Global Research in New York.
The euro last traded down 1.4 percent on the day at $1.4201
Analysts said long euro positioning has reached stretched levels in recent weeks, making the currency vulnerable to a pullback. Speculators increased bets in favor of the euro to the highest since July 2007 in the week ended May 3.
A move lower could test support around $1.4150 -- near the mid-April low and a 38.2 percent retracement of the January-May rise at around $1.4145.
Euro crosses were dumped after a deep fall in U.S. gasoline futures fueled the second major sell-off in the oil market in a week, hitting riskier assets across the board.
Weakness in the euro helped push the dollar index, which
measures the greenback against a basket of major currencies, to
75.308 <.DXY>, up 0.9 percent on the day. Against the yen, the
dollar rose 0.2 percent to 81.01 yen
Commodity-linked currencies dropped, with the Australian
dollar down 1.3 percent
MORE WORRY
Senior EU and IMF inspectors met Greek Finance Minister George Papaconstantinou at the start of a visit to Athens to press Greece to shore up its finances one year into the EU/IMF deal. For more see [ID:nLDE74A0SY].
Comments from a German deputy finance minister that euro zone officials will debate Greece's debt crisis next week but that no decision will be taken added to jitters. [ID:WEA0239]
Greece is not the only source of worry for investors, with Finland delaying a parliamentary vote on the EU's Portugal bailout plan to Friday because the country's second-largest party remained undecided. The leader of Finland's third-biggest party reiterated his opposition to Portugal aid.
Traders are weighing the euro zone's troubles against another big theme that has driven the market this year -- dollar weakness stemming from the Federal Reserve's reluctance to raise interest rates from near zero.
"It looks too early to call this a major reversal in the dollar," said Chris Turner, head of FX strategy at ING in London. "With little to emerge in fresh policy from the Fed ahead of its June 22 meeting, the dollar-funded carry trade would be a dominant theme for the second quarter."
Minneapolis Federal Reserve Bank President Narayana Kocherlakota on Wednesday repeated his call for a half-percentage-point interest-rate hike by year's end, lending his weight to what still appears to be a minority view at the U.S. central bank. [ID:nN9E7G4003]
Traders said some investors were increasingly expressing a
bearish view on the euro by adding to bullish bets on the
Australian dollar against the common currency
For column please click on [ID:nLDE7490D5].
Sterling hit its highest since March 24 against the euro