* US dollar index <.DXY> hits 3-year low
* Swiss franc at record high vs USD, helped by SNB comments
* Month-end flows seen tilted toward dollar selling (Updates prices)
By Julie Haviv
NEW YORK, April 29 (Reuters) - The U.S. dollar sank to a three-year low against a basket of currencies on Friday, with the euro seen reaching $1.50 on expectations the Federal Reserve will maintain its easy money policy while the European Central bank raises interest rates.
Higher interest rates in Europe compared to the United States have undermined support for the dollar, boosting the euro by 11 percent so far this year.
"There is no fundamental reason for investors to buy dollars aside from the possibility that it is now undervalued," said Kathy Lien, director of currency research at GFT Forex in New York.
The euro was buoyed by stronger-than-expected euro zone inflation data that increased the chance of another European Central Bank interest rate rise sooner rather than later. For more, see: [ID:nBRLTFE7E0]
The euro last traded at $1.4848
But the euro ran into selling and could struggle ahead of a reported options barrier at $1.4900.
Resistance was expected at $1.4906, a peak from Dec. 7 2009, ahead of a substantial barrier at $1.5000. Beyond $1.5000, the key target was the 2009 high of $1.5145.
U.S. economic data released on Friday showed U.S. consumer spending rose as households stretched to cover the higher cost of food and gasoline as inflation posted its biggest year-on-year rise in 10 months. [ID:nN29101956]
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For graphic on U.S. personal consumption: http://r.reuters.com/kak39 Fed funds rate hike expectations: http://r.reuters.com/xyz48r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
The U.S. dollar index <.DXY>, which tracks its performance against a basket of major currencies, fell to 72.834, a three-year low. It last traded at 73.055, down 0.1 percent.
Nevertheless, based upon price action in the market, there are some signs the dollar may be reaching a bottom, Lien said.
"From a purchasing power parity perspective, the dollar is undervalued against every major currency with the trade weighted index now approaching its lowest level since before the Plaza Accord in the 1980s," she said.
"The recent extremeness of the dollar's move could attract value hunters, but with a number of key event risks next week posing a threat to the U.S. dollar, we don't expect a material recovery."
The U.S. Labor Department will publish monthly U.S. payrolls and unemployment data next week.
However, analysts at Citigroup said dollar bearishness should persist.
"It is hard to be optimistic on the USD's long-term prospects, given the Fed's ability to surprise on the dovish side, the ongoing overhang of U.S. dollar assets among reserve managers, and the concerns that have emerged on long-term U.S. fiscal prospects," CitiFX said in a research note.
"Moreover in the very short term our month-end model points to additional U.S. dollar selling at month end for hedge rebalancing purposes, so there is the risk that investors will be even shorter U.S. dollar within a couple of days."
International currency trade was thinned by the London holiday for the United Kingdom's royal wedding.
The Swiss franc was buoyed by upbeat comments from the Swiss National Bank's chairman and an above-forecast Swiss sentiment survey. [ID:nLDE73S0I0]
The Swiss franc rose around 0.8 percent on the day to hit a record high of 0.8653 francs per dollar
Against the yen, the dollar was down 0.1 percent at 81.42 yen