TOKYO, August 8, 2008 (AFP) - The euro fell to a five-month low against the dollar in Asian trade Friday on fading prospects of an interest rate rise by the European Central Bank, dealers said.

The euro fell to as low as 1.5195 dollars, the lowest level since March 5, down sharply from its level of 1.5321 in New York late Thursday.

The dollar rose to 109.68 yen from 109.46, close to a seven-month high reached earlier in the week. The euro slipped to 166.80 yen from 167.72.

The euro tumbled after the ECB kept its key interest rate unchanged at 4.25 percent and recognised worsening economic conditions in the 15-member eurozone.

'We consider that there is some materialisation of the risks that we have identified,' ECB chief Jean Claude Trichet told a press conference Thursday, while also noting continued inflationary pressures.

Traders took the comments as a sign that the ECB 'has made the first step towards shifting to a rate-cutting bias,' said Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp.

'The European economy is in a recession, as are others elsewhere. It's just a question of whether officials have come out and said it openly,' he added.

The dollar has slumped against the euro and other currencies in the past year amid slowing US economic growth, but it has started to rebound recently amid concerns about eurozone, and particularly German, growth.

'A full-fledged adjustment phase has begun for the euro,' Bank of Tokyo-Mitsubishi UFJ dealer Akira Kato told Dow Jones Newswires. 'Players who have been bullish on the euro are now unwinding long (buy) positions.'

The dollar also drove back high-yielding currencies such as the Australian and New Zealand dollars, amid concerns about weakening economic conditions in those countries.

'Their economies are losing growth momentum, and the central banks there are signalling a near-term rate cut,' said Tsuyoshi Ueda, head of foreign exchange at margin-trade broker Gaitame.com.

The greenback rose despite a slump on Wall Street Thursday triggered by an unexpected rise in US jobless claims and fresh financial troubles.

The British pound was also under pressure after the Bank of England kept its key rate steady in the face of slowing economic growth and high inflation.