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By Herbert Lash
NEW YORK (Reuters) - The dollar posted its worst week in almost four months on Friday, pummeled by sterling and euro rallies driven by a deal on Britain's departure from the European Union, while China's weakest growth in nearly three decades weighed on equities.
The dollar crept lower against the euro as the common currency enjoyed a lift from hopes a Brexit deal could improve the odds of the euro zone avoiding a recession.
Dismal manufacturing data and worries the U.S.-China trade war could slow euro zone economies even further have rattled the euro this year, while fears of a disorderly Brexit had slammed sterling until a week ago.
"We can easily tell what's driving the euro, and that's a potential Brexit deal. We're going to find out this weekend whether this is going to turn into a realty or whether it's a pipe-dream," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.
The euro <EUR=> rose 0.36% to an almost two-month high of $1.1162. Sterling <GBP=> climbed 0.42% to a fresh five-month high of $1.2942.
British Prime Minister Boris Johnson confounded his opponents on Thursday by clinching a new deal with the EU, even though the bloc had promised it would never reopen a treaty agreed on last year.
Parliament will vote Saturday on a deal that could lead shares in British-oriented businesses, such as housebuilders and retailers, to rocket to record highs if approved. Investors also predict the pound could rally about 5%.
Michael Hewson, chief market analyst at CMC Markets in London, said however members of parliament cast their vote, the Brexit saga is unlikely to be over.
"If MPs do hold their noses and vote for the deal, at least we can move on to phase 2 which is negotiating the new relationship over the next 14-month transition period," he said.
Gloomy earnings reports from French carmaker Renault and food group Danone drove European shares lower while negative headlines about Johnson & Johnson and Boeing on Wall Street offset generally positive U.S. corporate earnings.
MSCI's gauge of stocks across the globe <.MIWD00000PUS> shed 0.24% while the FTSEurofirst 300 index <.FTEU3> of leading European shares closed down 0.38%.
Bleak Chinese economic data also soured risk appetite, with the Shanghai Shenzhen index <.CSI300> falling 1.2%.
Asian stocks stumbled after China's third-quarter growth slowed more than expected to its weakest pace in almost three decades as the bruising U.S. trade war hit factory output. Gross domestic product (GDP) rose 6.0% year-on-year.