NEW YORK, Feb 26 (Reuters) - The dollar declined against the euro on Thursday with investors willing to take on more risk, though poor U.S. data helped limit losses.
Demand for the euro rose earlier in the session as European and U.S. stocks advanced, but a report showing a plunge in new U.S. home sales in January added evidence on how poorly the world's largest economy is faring. U.S. stocks later reversed gains and ended the session lower.
The greenback has benefited recently from a flight-to-safety bid amid concerns about the outlook for the global economy.
But the dollar rose against the yen as worries about Japan's economy weigh on the currency.
"The lack of any significant reaction to negative U.S. economic data once again confirms that foreign exchange prices are not trading off of fundamentals, with the dollar the sole safe-haven currency now that the confidence in the yen has been shaken," said Michael Woolfolk, a senior currency strategist at The Bank of New York Mellon.
Among other majors, the British pound was boosted after the government launched a bank insurance scheme for toxic assets.
In late afternoon trading in New York, the euro was up 0.3 percent at $1.2746 <EUR=> while sterling was up 0.8 percent at $1.4312 <GBP=>.
The dollar was up 0.7 percent against the yen at 98.35 yen <JPY=>, off an earlier three-month high.
Sales of newly built U.S. single-family homes slumped to the lowest since at least 1963 in January, while prices fell to the weakest level in five years, according to a government report on Thursday that highlighted the continued distress in the housing market. For details, see [ID:nN25500413]
Other reports showed U.S. durable goods fell for a sixth consecutive month to a six-year low in January, while the number of U.S. workers claiming jobless benefits notched a fresh record in the second week of February, with new claims at the highest level since 1982. [ID:nN25289480]
"The weak reports reinforce the view that problems in the U.S. economy are more significant than what had been priced in the market," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto.
The data overshadowed, at least for now, a forecast from U.S. President Barack Obama for a $1.75 trillion budget deficit for the world's largest economy, amounting to 12.3 percent of GDP -- a figure that analysts said could prove negative for the dollar.
"There are some good things in this budget but a lot still seems very wasteful," said Dan Cook, senior market analyst, IG Markets, Chicago. "They have to plug the holes, they can't just keep bailing water out of the sinking ship."
Sterling remained within a half cent of a session high after Britain launched a plan which could end up insuring more than 500 billion pounds worth of toxic assets in a bid to spur lending in the recession-hit economy. [ID:nLQ720138]
The announcement of the plan came after Royal Bank of Scotland reported a 24 billion pound loss.
The yen remains a focus of foreign exchange markets, and as short-term speculators are forced to unwind bets it would strengthen, the currency moves even lower. The currency has shed more than 8 percent against the dollar so far in 2009.
"Sterling seems to be stabilizing, but the yen now is suffering," said Henrik Pedersen, chief investment officer at Pareto Investment Management Ltd.
"With exports collapsing, Japan now is part of the global problem. It has become clear that (investors) overpriced the yen for a while."
The dollar rose as high as 98.70 yen on Thursday, according to Reuters data, its highest since Nov. 10.
Bank of Japan board member Tadao Noda said on Thursday the economy may worsen more than the central bank had forecast in January. [ID:nT125700] (Additional reporting by Nick Olivari; Editing by Diane Craft)
Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests.
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