* China reviewing euro zone debt holdings -- FT
* Euro sentiment negative; contagion risk remains in focus
* U.S. durable goods orders, new home sales rise in April (Updates prices, adds comment)
By Wanfeng Zhou
NEW YORK, May 26 (Reuters) - The euro approached a four-year low against the U.S. dollar on Wednesday on persistent concerns about Europe's debt woes and after news suggesting that China was reassessing its euro zone debt holdings.
China is reviewing its euro zone bond holdings because of growing concerns about gaping deficits in countries including Greece and Portugal, the Financial Times reported on Wednesday.
"China will likely move to clarify this headline in the near future and in the process try to placate market fears of China dumping euro bonds," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto.
"However, the damage is done and the notion will stick, especially in a market that still prefers to embrace euro negative rather than positive news," he added.
In late New York trading, the euro <EUR=EBS> fell 1.6 percent to $1.2171, after hitting a session low of $1.2166 on electronic trading platform EBS.
The euro last week hit its lowest level since April 2006 at $1.2143 on EBS and is down about 15 percent so far this year.
The euro could re-test the key $1.2135 long-term support level in the next few days, with a break opening the door for a deeper slide toward $1.2125 to $1.2050, according to BNP Paribas.
The FT said representatives of China's State Administration of Foreign Exchange, or SAFE, which manages the reserves under the country's central bank, have been meeting with foreign bankers in Beijing to discuss the euro zone bond holdings. For more, see [ID:nWNA2135]
SAFE holds an estimated $630 billion of euro-zone bonds in its reserves, the newspaper said. The exact makeup of China's roughly $2.4 trillion in foreign exchange reserves is a state secret.
Against the yen, the euro was at 109.48 yen <EURJPY=EBS>, near a session low. On Tuesday, it tumbled to 108.83 yen, its lowest since November 2001. The euro also slid to a two-week low versus sterling <EURGBP=D4>.
Concerns about tighter dollar funding, with three-month dollar interbank rates hitting a fresh 10-month high, and poor demand at a German debt auction also weighed on the euro, analysts said. For more see [ID:nLDE64P0GQ] and [ID:nLDE64P0VB].
U.S. data showing a surge in durable goods orders and sales of new homes at nearly two-year highs added to the market's view the U.S. economy will outperform Europe. [ID:nN26186476]
"The overarching themes remain the same. The market is very fearful of the contagion factor and the debt issue dragging on the economy over there," said John Doyle, foreign exchange strategist at Tempus Consulting in Washington.
"We're still very bearish on the euro and very hawkish on the dollar. It does appear that the economies in the euro zone are in a much weaker position than here in the United States," Doyle said.
This week's pressure on the euro started after the Spanish central bank took over a small savings bank over the weekend, which raised fears of weaknesses in Europe's banking system.
U.S. Treasury Secretary Tim Geithner said on Wednesday that Europe has the right ideas to solve its fiscal crisis and needs to put them into practice to calm markets. [ID:nLDE64P123]
Geithner was in London at the start of a two-day European visit to confer with officials about ways to shore up the world economic recovery. He pressed for greater international cooperation to cope with the crisis spreading through southern Europe, which is sapping investor confidence.
The dollar was off 0.4 percent against the yen at 89.95 <JPY=>. The ICE Futures U.S. dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.6 percent at 87.306 <.DXY>. (Additional reporting by Gertrude Chavez-Dreyfuss; Editing by Leslie Adler)