Dollar Down but Pares Losses

The dollar was largely down against other major currencies, although a surprisingly strong rise in new home sales helped the dollar reverse some of its losses.

The government reported that new home sales beat expectations and rose 3.4 percent in November to an annual pace of 1.047 million units, which eased concerns about the extent of the housing market's slowdown and tempered expectations that the Federal Reserve could cut interest rates early next year to stimulate growth.

"The new home sales report did beat the consensus forecast, and that, I think, provides further evidence to support the view that the worst of the housing downturn may have passed," said Alex Beuzelin, senior market analyst for Ruesch International in Washington, D.C.

With the European Central Bank widely expected to keep raising rates and the Bank of Japan possibly discussing tighter monetary policy at its meeting in January, the dollar slipped as investors returned from the Christmas holiday with more conviction that the U.S. currency's yield advantage will fade next year.

Data showing weaker-than-expected Japan retail sales was overshadowed by a media report that the Bank of Japan will probably discuss raising interest rates at next month's policy meeting.

Currency trading in Asia was disrupted after strong earthquakes near Taiwan damaged undersea telecommunications cables, restricting international telephone traffic and Internet speeds, but trade in the North American markets was not affected.

U.S. benchmark Treasury note prices, meanwhile, were off almost a full point on the day at 99 27/32, bringing yields up to 4.64%, taking their lead from a fall in European government bond prices and the stronger housing data.

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