Shares firm, dollar eases, Gustav lifts oil

* U.S. dollar set for biggest monthly rise since 1997

* Crude rises over $1 on Gustav threat to Gulf of Mexico

* Asian shares climb, European shares flat

By Mike Peacock

LONDON, Aug 29 (Reuters) - Shares held firm on Friday as markets continued to digest a sharp upward revision to U.S. economic growth, while oil prices rose and the dollar eased as investors booked profits after its steep climb this month.

The dollar index .DXY dipped about 0.3 percent and oil CLc1 rose more than $1 to around $117 a barrel as Tropical Storm Gustav headed to the Gulf of Mexico, home to a quarter of U.S. crude production.

Thursday's hefty upward revision of U.S. GDP growth -- to an annualised 3.3 percent in the second quarter -- underscored the extent to which the U.S. economy has outperformed rapidly slowing Europe and Japan since March.

That theme helped propel the dollar in August towards its largest monthly rise against the euro since January 1997, up around 5.5 percent on the month.

"It would not be a surprise if the euro were to fall further," said Kimihiko Tomita, head of foreign exchange for State Street Global Markets in Tokyo, adding the common currency could eventually drop below $1.40.

The FTSEurofirst 300 index of top European shares was down 0.1 percent at 1,190.07, teetering either side of unchanged with declines in auto stocks offsetting gains in banks, while retailer Carrefour jumped after a reassuring first half update.

Asian stocks climbed, led by industrial firms and exporters, after the punchy U.S. growth data boosted the outlook for demand, but shares posted their fourth monthly decline in a row.

Japan's Nikkei share average .N225 rose 2 percent, lifted by shares of well-known overseas companies like Honda Motor Co and Canon Inc .

Official data on Friday showed Japan's industrial output rebounded in July but economists said it was likely a blip and would not ease recession fears in the world's No.2 economy, with inflation at a decade high and job offers at a four-year low.

BIG MONTH FOR DOLLAR, GUSTAV STRENGTHENS

The dollar eased 0.4 percent from late Thursday U.S. trade to 109.07 yen while the euro climbed 0.3 percent to $1.4744 .

"A three-day weekend is coming up and some players are opting to shed long positions on the dollar," said Joseph Kraft, head of Japan capital markets at Dresdner Kleinwort.

Although the 15-nation currency has bounced from a six-month low of $1.4570 hit on Tuesday, it has suffered a steep decline in August after a raft of weak economic data doused expectations for a European Central Bank interest rate rise this year. A flash estimate of euro zone inflation at 0900 GMT, is seen easing to 3.9 percent year-on-year from July's 4 percent.

Sterling hit a 12-year low on a trade-weighted basis as the spectre of a UK recession bolstered speculation of a possible interest rate cut this year.

The pound was on track for its biggest monthly loss since October 1992 -- shortly after Britain was forced to leave the European exchange rate mechanism.

ECB policymakers, notably Axel Weber, have said this week that talk about lower euro zone rates is premature.

In the starkest of contrasts, UK rate setter David Blanchflower, who has consistently voted for easier policy, told Reuters on Thursday that big cuts in interest rates were needed now to stop the economy heading into a deep and prolonged slump.

Euro zone government bonds rose modestly after a sell-off spurred by diminished expectations of ECB rate cuts.

September Bund futures FGBLU8 were 21 ticks higher from Thursday's settlement close at 114.36 with trading likely to be subdued ahead of a long holiday weekend in the U.S.

Crude oil for October delivery was rose $1.41 or 1.2 percent to $117 a barrel, after rising as high as $117.15 earlier.

Tropical Storm Gustav was blamed on Thursday for at least 68 deaths in the Caribbean and U.S. forecasters said it could hit New Orleans and Gulf of Mexico oil fields.

Forecasters said the storm could intensify rapidly and could within 72 hours become a Category 4 or 5 hurricane, the most severe on the hurricane intensity scale.