FOREX-Euro struggles near 14-mth lows on bearish outlook

* Euro weak, hovering just above 14-mth lows

* New Zealand dollar falls after retail sales disappoint

* Dollar index strong near 13-mth highs

By Anirban Nag

SYDNEY, May 14 (Reuters) - The euro was struggling on Friday, holding above 14-month lows against the U.S. dollar as concerns about anaemic growth in the euro zone dragged it lower, while worries about Britain's public finances undermined the pound.

In Asian trade, the battered euro was at $1.2535, barely changed from levels last seen in New York on Thursday when it lost nearly 0.7 percent.

Traders said the euro was likely to be defended around the $1.25 level on talk of some large option barriers around there. Still, the outlook for the euro was bearish with investors nervous over the commitment and resolve of EU member states to make significant inroads in consolidating fiscal positions.

On the other hand, encouraging data from the U.S. and expectations that the Federal Reserve will be the first to move amongst the major central banks to raise interest rates, supported the U.S. dollar.

The dollar index <.DXY> <=USD> was at 85.36, near a 13-month high, in part boosted by inflows from investors fleeing the euro zone and in part driven by expectations that the recovery in the U.S. was on much solid ground. [ID:nN13233348].

"I think we are at the point where, whichever way you think the world is going to go - boom or bust - the dollar index will probably head higher," said Adam Carr, senior economist at ICAP.

"It's already had a solid run, but love for the euro is almost non-existent at the moment and the U.S. economy is staging a decent bounce back. I don't know know if there is a near term catalyst to change the euro's fortunes."

Indeed, investors were of the view that the harsh fiscal tightening in Europe would dampen an already-weak recovery. Traders say, if the euro breaks below $1.25, stop-loss selling could see it push toward $1.2330, its October 2008 low.

The euro was down on the yen at 116.18 yen, having shed 1.3 percent on Thursday. The dollar was marginally higher on the yen, rising to 92.70 yen from 92.60 yen late on Thursday.

Sterling was on the defensive below $1.46, having shed 1.4 percent on Thursday , hurt by data showing the UK goods trade deficit widened more than expected in March. [ID:nONS006657].

That came after Bank of England Governor Mervyn King said weaker euro zone export markets had increased growth risks for the British economy.

Meanwhile, the New Zealand dollar fell around a third of a cent to $0.7120 from $0.7150/55 after first quarter retail sales numbers disappointed. Seasonally adjusted retail sales volumes, rose 0.2 percent in the March period, compared with a Reuters poll forecast of a 0.3 percent increase.

The Australian dollar was steady at $0.8961, but off Thursday's high of $0.9026 reached after stronger-than-expected Australian employment data. (Editing by Ed Davies)