FOREX-Eyes on dollar parity after brutal week for euro

* Euro down in Europe after recovering from 12-year low

* Dollar index up 0.3 percent after biggest fall in a month

* Sterling hits almost five-year low (Updates prices, adds quotes, flow data)

By Patrick Graham and Ahmed Aboulenein

LONDON, March 13 (Reuters) – The euro was back on the defensive on Friday after a rebound the day before that lifted it 1 cent above this week’s 12-year lows against the dollar.

Dealers and analysts said the recovery, helped by a fall in U.S. February retail sales, looked temporary after eight days which have seen 5 percent knocked off the euro’s value and taken the dollar past many banks’ targets for the next year.

U.S. investment bank Goldman Sachs was the latest major bank to slash its forecasts for the euro on Friday, predicting that it will plunge through parity with the dollar within a year and hit a new record low by the end of 2017.

“I don’t think its an exaggeration to say this week has been a gamechanger,” said Neil Mellor, a currency strategist with Bank of New York Mellon in London.

“The combination of last Friday’s jobs numbers and the launch of QE in Europe this week has cemented the picture of monetary policy divergence. People are now convinced the Federal Reserve will be able to move in the middle of this year. In that context, talk of parity and even below it is not overdone.”

The euro fell half a percent to $ 1.0572.

Still, EPFR data cited by a Bank of America Merrill Lynch Global Research report showed that capital was flowing away from the dollar and into the euro after the European Central Bank started its asset buying program on Monday.

The report said another week of “euphoric inflows into EU equities” had seen investors pull a net $ 47 billion out of U.S. equity funds so far this year, while pouring $ 36 billion into European equity funds.

“This is one reason that could slow down the dollar against the euro,” said Jane Foley, senior currency strategist at Rabobank in London. “It is clear that the equities of a region where quantitative easing has been carried out do well.”

The other big mover in the morning in Europe was sterling, hitting an almost 5-year low after Bank of England Governor Mark Carney said he was in no rush to raise interest rates from their historic lows.

The dollar index last stood little changed on the day at 99.563, after sliding 0.4 percent on Thursday, its biggest one-day fall in a month. The index earlier rose as far as 100.060, a high not seen since mid-April 2003.

“The fact that the dollar’s bout of weakening yesterday didn’t extend suggests that dollar bulls have control of the market,” said Foley.

“However, we are close to next week’s U.S. Federal Reserve meeting so perhaps the market will be less willing to take on new positions particularly in light of the weak U.S. data we had yesterday.”

No major market-moving economic data is due on Friday, leaving the dollar index on track to end the week up more than 2 percent, extending last week’s 2.5 percent rally.

Against the yen, it slipped to 121.42 yen, pulling away from a near eight-year high of 122.04.

(Editing by Andrew Heavens)