(Updates prices, adds comments)
By Gertrude Chavez-Dreyfuss
NEW YORK, Oct 17 (Reuters) - The dollar slipped broadly on Wednesday, hurt by a sharp fall in U.S. housing starts for September and a surge in crude oil prices amid mounting geopolitical tensions.
A weaker housing market and a slowing U.S. economy has enhanced the chances of Federal Reserve policy-makers cutting benchmark interest rates again from the current 4.75 percent, which should diminish the dollar's appeal to global investors. Fed officials next meet on Oct. 30-31.
The Commerce Department said home construction starts fell 10.2 percent last month to its weakest level in 14 years. For details, see [ID:nN17336451].
In the wake of the housing starts data, implied prospects for a quarter percentage point cut in the federal funds rate at the October Fed meeting hit 60 percent (FFX7: Quote, Profile, Research), from 38 percent overnight and 32 percent before Wednesday's data.
"The dollar is weaker today because of the weak housing starts report and that supports the notion that the weight from residential fixed investments on GDP will stick around much longer than originally thought," said David Powell, senior currency strategist, at IDEAglobal in New York.
"Also oil prices hitting new highs is certainly a negative for the economy," he added.
Oil jumped to yet another record high at $89 per barrel (CLc1: Quote, Profile, Research) on Wednesday, and this initially weighed on the U.S. stock market.
Traders, meanwhile, practically ignored data showing a rise in headline U.S. inflation last month. U.S. consumer prices rose at the sharpest rate in four months in September. But core prices, which exclude volatile food and energy costs, rose in line with expectations. See [ID:nN17260664].
"The Fed will have to ignore a rise in headline CPI above 3 percent -- global food and energy prices aren't going to respond much to a US slowdown, and it makes no sense to throw the economy into recession to create offsetting declines in other prices," said CIBC World Markets in a research note.
"Growth indicators, rather than inflation readings, are likely to dominate market sentiment at this stage of the cycle," it added.
In late afternoon trading in New York, the euro was 0.2 percent higher at $1.4191 <EUR=>.
Analysts said traders pushed the euro to $1.4230 eaerlier, but failed to sustain it at that level amid caution ahead of the Group of Seven finance ministers' meeting over the weekened.
"It is possible that the G7 could issue a statement that would be cautious about euro strength or would be aggressive about Asian currency weakness. So you see people taking off a bit of money from the table," said John McCarthy, director of foreign exchange at ING Capital Markets in New York.
The G7 ministers will meet in Washington over the weekend and many analysts expect currencies to be one of the major topics for discussion given the recent market volatility.
U.S. Treasury Undersecretary David McCormick said most of Friday's meeting of key global financial officials will be devoted to analyzing how to calm uneasy financial global markets.
The dollar index (.DXY: Quote, Profile, Research), which is a gauge of the greenback's value against a basket of six currencies, fell 0.2 percent to 78.081.
Against the yen, the U.S. currency reversed earlier gains, falling 0.2 percent to 116.70 <JPY=>. The euro was little changed against the yen to 165.64 yen <EURJPY=>.
The market, meanwhile, showed ltitle reaction to the Fed's "beige book," report, a snapshot of conditions in the U.S. economy. It said the U.S. economic activity grew in all of the Fed's districts, but the pace of the Fed's expansion has decelerated since August. For details, click on [ID:nN17337995].
(Additional reporting by Vivianne Rodrigues)