(Adds quotes, updates prices)
By Gertrude Chavez-Dreyfuss
LONDON, Sept 12 (Reuters) - The dollar plunged to a record low against the euro on Wednesday as expectations that the Federal Reserve will cut interest rates next week have diminished its attractiveness to global investors.
The dollar also dropped to a fresh 15-year low against a basket of currencies for a fifth consecutive session and was unable to sustain its gains versus the yen despite the resignation of Japanese Prime Minister Shinzo Abe earlier.
Persistent problems in the global credit market and weak U.S. jobs data have led investors to expect a half percentage point easing in the federal funds rate currently at 5.25 percent.
"Dollar weakness is still the story of the day," said David Jones, chief market analyst, at CMC Markets in London.
"Markets seem to be expecting a rate cut -- I think half a percentage point -- and that has been weighing on the dollar. In the short term we are looking at $1.40 in euro/dollar, but I wouldn't be surprised to see if the pair hits hits $1.42 in the next six weeks," he added.
The euro rose as high as $1.3889 <EUR=>, according to Reuters data, the highest since the launch of the single European currency in 1999. It last traded at $1.3880, up 0.3 percent on the day.
Short term interest rate futures are pricing in around an 80 percent chance that the Fed will cut the fed funds target rate by 50 basis points at the U.S. central bank's Sept. 18 policy-setting meeting.
Still some analysts believe the Fed will not likely veer away from its gradual approach in easing monetary policy.
"It does not seem reasonable that the Federal Reserve will be forced into what would likely be seen as a bit of panic in response to a 50 bp (basis point) cut in response to a 4,000 decline in jobs that could very well be revised away next month and is suspect in any case," said Brown Brothers in a research note.
By 1239 GMT the dollar index was down 0.3 percent at 79.447 (.DXY: Quote, Profile, Research), having fallen to a 15-year low at 79.404.
The dollar fell 0.3 percent to 113.86 yen <JPY=>, while the euro was little changed at 158.06 yen <EURJPY=>.
Against the Swiss franc the dollar slid 0.5 percent to 1.1819 francs <CHF=>.
The yen, meanwhile, initially slipped on news Japanese Prime Minister Abe had resigned, but regained ground as the euro hit a record high against the dollar. The yen was up around 0.4 percent at 113.87 <JPY=>.
With investors still worried about turmoil in credit markets stemming from problems in the U.S. subprime mortgage sector, Abe's resignation, by itself, was not likely to play a crucial role in shifting market focus to the yen, traders said.
"Positioning out there is not that heavy and there is still room to build long euros and long sterling (positions) against the dollar," said Gavin Friend, chief currency strategist, at Commerzbank in London.
Remarks by European Central Bank President Jean-Claude Trichet on Tuesday that the bank's monetary policy remained accommodative also added support to the euro.
In addition, data showed on Wednesday that euro zone industrial output rose more than expected in July and wage growth picked up in the second quarter. The numbers boosted the case for higher ECB interest rates once market turmoil subsides.
By contrast, U.S. Treasury Secretary Henry Paulson's prediction that market turmoil would last longer than the 1998 financial crisis put the dollar under additional pressure.