* Dollar stays bullish after euro slides overnight
* Aussie slumps on weak data, gives dollar leg up in Asia
* Dollar/yen pokes above 110 threshold, first since 2008 (Adds quotes, details)
By Shinichi Saoshiro and Ian Chua
TOKYO/SYDNEY, Oct 1 (Reuters) - The dollar struck a six-year high against the yen and was poised near a two-year peak against the euro, while gathering more bullish impetus on Wednesday as weaker than expected Australian retail sales data sparked selling on Australian dollar.
The Aussie shed 0.8 percent to $0.8679 after stooping to an eight-month low of $0.8666.
The dollar’s strength overnight was partially down to a slowdown in euro zone inflation, which fed expectations of a divergence between monetary policies in Europe and the United States, with the Federal Reserve expected to tighten at some point.
Profit taking brought the dollar off its peak above 110 yen, a level unseen since August 2008, traders said. It topped out at 110.09 yen, and was last traded at 109.88 yen, still up 0.3 percent from late Tuesday in Asia.
Market participants expected the dollar to firm further against the yen if upcoming U.S. data fan prospects of an early rate hike by the Fed.
“Friday’s non-farm payrolls will be key, as it could raise rate hike expectations another notch,” said Shinichiro Kadota, chief Japan FX strategist at Barclays Bank in Tokyo.
Dollar bulls all but shrugged off a decline in U.S. consumer confidence in September and a home price report that fell short of expectations.
Many still believe the U.S. economy is on a recovery path that will allow the Fed to raise interest rates well before the European Central Bank and Bank of Japan.
The market barely reacted to a comment by a Japanese government spokesman who said the weak yen needed to be monitored, but traders remained on guard in case authorities jawboning becomes louder.
The euro languished near a fresh two-year trough, having come pressure after overnight data showed euro zone annual inflation cooled to 0.3 percent in September from 0.4 percent, intensifying the case for the ECB to offer more stimulus.
The common currency fell as far as $1.2571 before managing a bounce to $1.2613. The euro lost 3.82 percent in September - its biggest decline in over two years.
“Euro zone equities closed up 1.2 percent, presumably assisted by the prospect of continued stimulative policy from the ECB,” David de Garis, senior economist at National Australia Bank, said.
Renewed heat on the common currency helped push the dollar index to a four-year high of 86.218. The index has since edged back down to 86.048. (Editing by Simon Cameron-Moore)