The dollar held near a record low versus the euro on Thursday after weak U.S. data fuelled recession fears and Federal Reserve Chairman Ben Bernanke signaled a readiness to cut interest rates again.

By contrast, the euro found support from comments by ECB Governing Council member Axel Weber, who said on Wednesday that market expectations for the European Central Bank to cut rates failed to take into account the dangers of higher inflation.

The German economy is solid and the euro zone economy is only likely to slow to just below its long-term potential rate this year, Weber said, adding the bank would act if long-term inflation expectations seemed to be rising significantly.

Figures released earlier on Wednesday backed up that picture, as German unemployment fell by a larger than expected 75,000 on the month in February.

Analysts said that while the euro had paused from Wednesday's sharp rally above the key $1.50 barrier, the single currency still had the upper hand.

Sentiment is still very much against the dollar in the very short term, but what we've seen is a reluctance to chase what is a very strong trend, Credit Suisse market strategist Adam Myers said.

Clearly the Bernanke speech yesterday and the Kohn speech the day before have done enough to get the market to believe that significant rate cuts are still to come from the Fed, he added.

The euro eased 0.2 percent to $1.5088, just off a record high of $1.5144 struck on Wednesday.

The dollar index, which tracks its performance against six major currencies, was little changed at 74.285, just above a record low 74.070 hit on Wednesday.

The dollar was steady against the yen at 106.43 yen after dipping below 106 yen on Wednesday.

EURO STRENGTH AHEAD

The euro has surged nearly 5 percent in roughly three weeks and investors see plenty of scope for further strength.

In the current environment, it seems that only a clear worsening of market sentiment and a steep fall in equity markets or surprisingly weak euro zone data could stop momentum in euro/dollar, said Commerzbank in a note to clients.

The Fed has cut its benchmark overnight lending rates by 2.25 percentage points since mid-September to 3 percent, while the ECB has kept its main rate at 4 percent.

Bernanke signaled further rate cuts to avert a recession, making clear that the U.S. central bank was more worried about risks to growth than inflation. He will continue his testimony later on Thursday, when he addresses the Senate Banking Committee.

All 15 Wall Street dealers surveyed in a Reuters poll on Wednesday expected a March rate cut and saw the Fed bringing interest rates lower than previously thought.

Japan's vice finance minister for international affairs Naoyuki Shinohara said the Group of Seven industrialized nations is closely monitoring the global financial market turmoil and stands ready to take action to enhance stability in the market.

The market showed a muted reaction to remarks by Bank of Japan board member Atsushi Mizuno, who expressed doubts about the effect that any interest rate cut might have in supporting the Japanese economy, which he said was at a standstill.

Investors will look to U.S. GDP data and weekly U.S. jobless claims for further confirmation that the U.S. economy is heading for recession.

(Reporting by Veronica Brown; Editing by Ron Askew)

Ben Bernanke Credit Suisse European union Inflation