LONDON, Nov 19, 2008 (AFP) - The dollar fell sharply against the euro on Wednesday after news that US consumer prices plunged by a record 1.0 percent in October amid an accelerating global financial crisis.

At about 1420 GMT, the European single currency jumped as high as 1.2748 dollars, compared with 1.2621 dollars in New York late on Tuesday.

Against the Japanese currency, the dollar fell to 96.73 yen from 96.89 yen on Tuesday.

Slowing inflation gives the US Federal Reserve more room to lower US interest rates even further to try to ward off a deep recession, analysts said.

The 1.0-percent drop exceeded analyst forecasts for a 0.8 percent fall. The prior record was a 0.9 percent decline in July 1949.

The CPI downturn followed little change in prices in September and August and was led by oil prices plummeting from their July record highs.

"The collapse in commodity prices is having a dramatic effect on inflation in the United States," said Paul Ashworth, senior US economist at the Capital Economics consultancy in London.

Core CPI, excluding food and energy prices, slipped 0.1 percent.

"The big surprise in October's CPI figures was the 0.1-percent month-on-month decline in core prices," Ashworth said.

"That decline seems to be due to the impact of the economic downturn and the first pass-through effects of the commodity price slide."

For the 12 months to October, headline US inflation ran at 3.7 percent, slowing from a 4.9 percent annual rate in September, while core CPI was 2.2 percent.

Last month, the Fed slashed its key lending rate by a half-point to 1.0 percent, matching a historic low for American borrowing costs, in the latest effort to ease a credit crisis that is strangling the US economy.