Dollar rises on weak housing data

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NEW YORK (Reuters) -- The dollar rose against the euro on Wednesday after data suggesting a slowdown in housing markets has yet to bottom gave support to the U.S. currency as a safe haven.

U.S. blue chips stocks fell after the housing data, which showed the inventory of unsold homes in the U.S. rose last month, while prices fell.

The dollar had sold off recently in part on growing optimism about the outlook for the U.S. economy.

"This is a mixed bag of data," said Omer Esiner, senior market analyst at Travelex Global Business Payments in Washington. "More likely the dollar will probably firm on the fact that inventories are rising and prices are falling."

The pace of sales of existing homes in the United States climbed 2.9% in April, according to an industry survey. However, the National Association of Realtors said the inventory of existing homes for sale rose 8.8% and the median national home price fell 15.4%.

"Things are still not that great out there, so we are a little skeptical of the 'green shoots' optimism on the economic side," said Robert Blake, senior currency strategist, at State Street Global Markets, in Boston. "It's going to be a long, slow recovery and we will have more bad news to come."

In midday New York trading, the euro was 0.5% lower at $1.3924 , after hitting a session low of $1.3872. The dollar was 0.2% higher against a basket of six major currencies at 80.286. It hit a five-month low on Friday just below 80.00.

Comments by a European Central Bank policymaker suggesting further interest rate cuts could not be ruled out also weighed on the single currency.

ECB Governing Council member Erkki Liikanen said on Wednesday that the bank's current key interest rate of 1% isn't necessarily the lowest it can go.

But the dollar fell against the British pound, which traded above $1.60 for the first time in almost seven months.

The pound was propelled by rising optimism about the U.K. economy and financial sector. It was last up 0.8 % at $1.6059 , having traded as high as $1.6075, according to Reuters data.

Gains in the British pound also pushed the euro below a 200-day moving average. The euro was last down 1.2% against the pound at 86.73 pence, trading below a 200-day moving average at 86.77 pence, according to Reuters data.

Investors will focus now on a U.S. Treasury auction later on Wednesday, in which the government will sell $35 billion of five-year debt.

Moody's Investors Service on Wednesday affirmed the AAA credit rating of the United States, assuaging fears about U.S. creditworthiness that have been creeping up in financial markets and weighing on the dollar.