* Dollar touches 2-week high vs euro, 1-month high vs yen
* Oil price slump supports dollar
* U.S. housing bill improves confidence in financials (Recasts; adds comments, changes byline)
By Vivianne Rodrigues
NEW YORK, July 23 (Reuters) - The dollar rallied to a one-month peak against the yen and a two-week high against the euro on Wednesday, supported by a further drop in oil prices and improved confidence in the U.S. financial sector.
Oil prices, which are trading more than $20 below this month's record peak CLc1 of $147.27, continued their decline on Wednesday following the release of U.S. crude inventory data, giving the greenback a generally bid tone.
At the same time, the U.S. House of Representatives prepared to vote on a measure that is expected to help the housing sector recover from its worst downturn since the Great Depression. The White House said President George W. Bush will sign the bill into law.
"U.S. equities, oil prices and a little bit of hangover from yesterday's hawkish Fed speak have kept the dollar supported so far on Wednesday," said Ronald Simpson, managing director of global currency analysis at Action Economics in Tampa, Florida.
"Congress is planning on passing this housing bill today, and the president said he was going to sign it," he added. "While it's not a fix to the problem, it certainly is going to allay some fears, at least for the short term."
In late afternoon trading in New York, the dollar climbed to its highest level in a month at 107.97 yen <JPY=>, according to Reuters data, before easing back to 107.88 yen, still up 0.4 percent.
The euro had fallen as low as $1.5671 <EUR=>, its weakest level since July 9 and more than 3 U.S. cents below last week's record high of $1.6037, according to Reuters Dealing. It last traded at $1.5688, down 0.6 percent on the day.
Adding to the euro's downside was data showing euro zone new industrial orders fell more sharply than expected.
The dollar rose to a one-month high of 1.0400 against the safe-haven Swiss franc <CHF=>.
The greenback also continued to benefit from comments from Philadelphia Federal Reserve President Charles Plosser, who said on Tuesday that the U.S. central bank may have to raise interest rates sooner rather than later to combat inflation.
The implied prospects for the Fed to increase benchmark lending rates in September, to 2.25 percent from 2 percent, hit 68 percent, compared with 52 percent late on Tuesday and 26 percent a week ago. For details, see [ID:nCHB000501].
BEIGE BOOK, MORE DATA AHEAD
A Federal Reserve survey of economic conditions showed that price pressures were elevated or increasing across the United States in recent weeks, even though the pace of economic growth slowed. [ID:nN23443852]
"All reporting districts characterized overall price pressures as elevated on increasing," the Fed said in its Beige Book report on the state of the economy through July 14.
"The Beige Book report reaffirms the stagflationary bias occurring in both the inflation and growth categories and that the Fed is likely to remain boxed in by the credit environment," said Alan Ruskin, chief international strategist at RBS Global Banking & Markets. "However, today the market will continue to focus on oil, where price slippage is still regarded as EUR/USD negative."
Analysts said more data on Thursday -- along with oil price and equity developments -- would also be key in determining whether the slide in euro/dollar lasts or soon gives way to another try beyond $1.60.
U.S. existing home sales will vie for attention with German Ifo business sentiment survey and euro zone flash PMI, market watchers said.
"The combination of prolonged Ifo and PMI weakness could further punish the single currency to as low as $1.5660," Ashraf Laidi, chief FX strategist at CMC Markets U.S. in New York, said in a research note.
The biggest loser among the majors was the New Zealand dollar, which slipped 1 percent to US$0.7512 <NZD=> after New Zealand finance company Hanover Finance said it was suspending repayments of existing loans and interest.
Analysts said there could be scope for a recovery, however, if the Reserve Bank of New Zealand leaves rates on hold at 8.25 percent on Thursday, disappointing minority bets for a cut. (Additional reporting by Wanfeng Zhou and Nick Olivari in New York; Editing by Jonathan Oatis)