NEW YORK (Reuters) - The US dollar slid against most major currencies on Friday, and posted its worst weekly performance against the euro in 2008 to date, after US economic reports rekindled fears that the economy continues to slouch toward recession.

Investors pushed the dollar down against the euro for the fifth day in the last six, pushing the euro zone currency above $1.47 for the first time since February 5, after a gauge of US consumer sentiment plunged to a 16-year low in February.

The euro last traded at $1.4684, up 0.3 percent on the day, after climbing as high as $1.4709, according to Reuters data.

The dollar also fell 0.2 percent to 107.67 yen after the New York Federal Reserve said its New York state February manufacturing index posted the biggest monthly decline on record.

The data "is very, very negative, and it's going to be difficult to avoid negative US growth in the first quarter," said Michael Woolfolk, senior FX strategist at The Bank of New York Mellon.

As a result the euro may be set for a run at its record high just shy of $1.50, said Mr. Woolfolk, particularly with the Federal Reserve seen cutting interest rates further below the European Central Bank's (ECB) benchmark interest rate.

Indeed, Friday's batch of weak data comes a day after Fed chairman Ben Bernanke warned of continued sluggish growth in the near term and said the central bank will act as needed to provide insurance against downside risks.

Since mid-September, the Fed has cut its benchmark rate by 2.25 percentage points to three percent. Mr. Bernanke's remarks and recent economic data have left investors betting on another half percentage point cut at the central bank's March meeting. But expectations for the ECB to follow with rate cuts of its own have faded, with ECB officials stressing that inflation is a bigger concern than growth.

That has continued to move rate spreads in favor of the euro, reducing the appeal of holding US over euro-zone debt.

The dive in US short-term yields in the wake of Mr. Bernanke's testimony and news of credit rating downgrades of US bond insurers, has seen two-year rate differentials move further against the dollar.

The US two-year bond yield is now nearly 210 basis points below the average for the group of 10 most industrialised nations, said Credit Suisse in a note to clients.

After dipping to around $1.4440 last week, the euro has retraced more than half of the ground it lost since rising above $1.49 on February 1.

Though still weaker versus the dollar so far in February, it has gained 1.2 percent this week, it's best week since the week ended December 30.

The dollar also fell 0.5 percent to 1.0920 Swiss francs. Sterling was the only major currency to weaken against the greenback, falling 0.4 percent to $1.9607, with dealers citing technical factors for the pullback.

Some analysts worried that inflation may not be only a European phenomenon. The Reuters/University of Michigan consumer sentiment index showed one-year inflation expectations soared to their highest since August 2006.

Separate data on Friday showed US import prices rose by more than economists had expected in January, mainly the result of high food and energy costs.

Alan Ruskin, chief international strategist at RBS Greenwich Capital in Greenwich, Connecticut, said in a research note to clients that Friday's data "will play to market talk of stagflationary tendencies".

Stagflation refers to a period of high prices, high unemployment and low growth. For the US, the last severe episode of stagflation was in the 1970s.