Dollar falls against euro, oil at 2-1/2 year high

Reuters) - The euro rose to a near 15-month high against the dollar on Friday on the single currency's widening yield advantage, while oil surged to a two-and-a-half year high on worries that war in Libya and unrest in the Middle East will disrupt supplies.

Higher oil prices also encouraged money to flow out of the dollar into the euro and stoked concerns about commodity-fuelled inflation, helping propel gold to another record.

"So far this year commodities are relatively unshaken by bad news on the macro front," said Yingxi Yu, an analyst at Barclays Capital. "The market is comfortable with the expectations of a recovering global economy with an emphasis on the developed world rather than the developing world."

Asian shares rose as it appeared a strong aftershock that struck Japan's earthquake-ravaged northeast late on Thursday had not done major damage.

European and U.S. markets, which had dipped on news of the aftershock, were expected to open higher, with financial bookmakers calling Europe's main indexes up 0.5-0.7 percent, while S&P 500 index futures pointed to Wall Street gains.

U.S. Treasury prices fell as the risk of a government shutdown and resulting disruption to the government debt programme loomed.

U.S. President Barack Obama and congressional leaders failed to reach a deal on Thursday in a budget row that could see the federal government closed down at midnight on Friday, potentially crimping the economic recovery.

The euro rose as high as $1.44 , its highest since mid-January 2010, bringing its gains for the year to 7 percent.

The European Central Bank raised its key interest rate to 1.25 percent on Thursday, as had been widely expected, widening the euro zone's yield advantage over the United States, Britain and Japan, where policy rates remain at record lows.

ECB chief Jean-Claude Trichet signalled the bank was ready to tighten further if needed to curb inflationary pressures, but added it had not decided if the move was the first of a series.

"They were not as hawkish as they were after the last meeting, but there was enough of a message that the ECB will hike further this year," said Mitul Kotecha, head of global FX strategy at Credit Agricole in Hong Kong.

The euro slid around 20 percent against the dollar between November 2009 and the middle of last year, but has been on a broadly appreciating trend since then.

The single currency bought around 122.55 yen , near an 11-month high. The dollar was around 85.15 yen , down from a six-month high around 85.54 yen set on Thursday.

"It looks like the yen will weaken across the board," said Satoshi Okagawa, head of FX and money trading group for Sumitomo Mitsui Banking Corporation in Singapore.

"It is impossible to imagine at this point just how much Japan's production and exports may fall, but the image is that this is not the type of market condition that calls for buying the yen."

U.S. And European stocks fell around 0.2 percent after a 7.4 magnitude earthquake shook the northeast of Japan's main island, which was devastated by a massive 9.0 magnitude quake and tsunami four weeks ago.

Tokyo's Nikkei share average opened lower, but rebounded strongly to close up 1.9 percent as it seemed the latest quake had not caused major damage.

The Nikkei has regained more than two-thirds of the losses sustained in the immediate aftermath of the March 11 quake, but investors remain concerned about the impact on corporate profits after it knocked out production and crippled a nuclear plant.

"People are buying shares for now, but it's not going to last long," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

"Fundamentals remain unclear and extreme uncertainty surrounding earnings, with many firms set not to provide annual forecasts will keep a lid on the market's gains."

MSCI's index of Asia Pacific shares outside Japan rose 0.6 percent, recording the latest in a series of near three-year highs it has struck over the past week.

After a patchy start to the year -- in part due to concerns about policy tightening in response to energy and food-led inflation -- emerging markets have roared back in recent weeks.