FOREX-RPT-Dollar edges up in thin trade, set for strongest year since 2005

* Greenback higher across the board vs major peers in 2014

* Dollar index up 12 pct in 2014, its best year since 2005

* Dollar hits new 29-month highs against euro, franc (Repeats to widen distribution. Updates prices, adds comments; changes byline, dateline, previous LONDON)

By Sam Forgione

NEW YORK, Dec 31 (Reuters) – The U.S. dollar looked set on Wednesday to end 2014 with a gain of more than 12 percent against a basket of major currencies, its strongest year in almost a decade and, according to most major banks, just a prelude to a further rise next year.

Traders favored the dollar as this year’s winning bet heading into the New Year, pushing the euro to a fresh 29-month low against the greenback of $ 1.2112 and the dollar to a fresh 29-month high against the Swiss franc of 0.9925 franc in thin trade.

The dollar index, which measures the greenback’s value against a basket of six major currencies, was last up slightly at 90.077. This year, though, the dollar should see its largest gain since it climbed nearly 13 percent in 2005, and only the third year in 30 in which it has gained more than 10 percent.

“The winning trade has been in the dollar, and traders are closing the year holding on to their strong dollar positions,” said Chris Gaffney, senior market strategist at EverBank Wealth Management in St. Louis.

The contrast between the U.S. Federal Reserve’s path towards raising interest rates next year and looser monetary policies in the euro zone and Japan was the driving force behind the dollar index’s rise to its highest in more than 8-1/2 years on Tuesday.

However, the dollar has come a long way in a hurry. It is not clear whether further gains in the first half of next year might put the Fed off raising rates. Also, turbulence may grow in developing markets, especially China. Political turmoil could again threaten Greece’s presence in the euro, adding to concern over the global financial system.

“We’re going to see more volatility in the dollar given uncertainty about the timing and size of Fed interest rate increases in 2015,” said Gaffney of Everbank. “If there are questions about the global economy, the Fed may delay a little bit.”

The euro was last down 0.22 percent against the dollar at $ 1.2129. The dollar was last up 0.25 percent against the franc at 0.9913 franc. The dollar was last up 0.08 percent against the yen at 119.55 yen. Sterling was an exception and was last up 0.21 percent against the dollar at $ 1.5590.

On Wall Street, the benchmark S&P 500 stock index was last up 0.16 percent.

(Reporting by Sam Forgione; Additional reporting by Jemima Kelly and Patrick Graham in London; Editing by Peter Galloway)

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