The euro slid to a two-month low against the dollar on Thursday as a sharp drop in euro zone retail sales raised worries about the region's economic outlook and revived expectations for eventual rate cuts.

The European Central Bank is expected to keep interest rates steady at 4 percent later in the day and repeat its concern over inflation, but traders said mounting signs of slowing growth suggested the ECB may lower rates before the end of the year.

But market players said it was too early to say whether the euro is set for a sustained decline after hitting a record against the dollar just two weeks ago.

The dollar was getting a boost from waning worries about the credit market crisis, as well as signs that other economies are starting to feel the impact from the US slowdown.

Highlighting the fallout elsewhere, the New Zealand dollar slid more than 1 percent after data showing the country's biggest quarterly employment drop in 20 years stoked expectations for its central bank to start cutting rates later in the year.

'Markets are starting to feel more optimistic after having priced in the worst-case scenario,' said a senior dealer at a Japanese trust bank.

'In contrast, negative factors are surfacing for the euro, with recent economic data showing weakness. The market is not yet fully seeing a turnaround, but is starting to incorporate such negative factors bit by bit,' he said.

The euro fell to $1.5285 on trading platform EBS, the lowest since early March. It later trimmed some losses and was at $1.5306.

Some euro selling was spurred by a Financial Times article that said the United States and Europe now have a united desire to see the dollar strengthen against the euro, traders said.

'The focus today is European currencies, with the euro looking to test the downside on growing concerns about growth slowing down in the euro zone, while sterling also looks weak,' said a dealer at a big Japanese bank.

At a meeting last month, the Group of Seven major industrial nations issued a strong expression of concern about sharp currency swings.

'The G7 message against dollar weakness is still alive and weighing on the euro,' the dealer added.

With the Bank of England also likely to hold rates at 5 percent later in the day, sterling hovered near an 11-week low of $1.9503 hit on Wednesday after weak consumer sentiment and employment data. - Reuters