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Dollar Drops Vs. Euro After Weak U.S. Housing Report

The dollar edged lower against the euro after a surprisingly weak report on existing home sales rekindled worries that a downturn in the U.S. housing sector may have further room to run.

Some analysts said the data showing sales of existing homes in April were at their lowest since June 2003 could help cut short a rebound in the dollar, which is poised for its fourth straight weekly gain against the euro.

"We had a bit of weak (housing) data and it definitely spurred a little bit of push higher in the euro, but there wasn't enough momentum," said Steven Butler, director of foreign exchange trading at Scotia Capital in Toronto.

"We didn't get to $1.3480 (in euro/dollar) which is immediate resistance. I don't think the market is too keen to take it one way or the other and we we will be settling in for the rest of the day," he added.

Trading was light ahead of the Memorial day holiday weekend in the United States.

The euro was up , well above a six-week low of $1.3411 hit earlier in the session on electronic trading system EBS.

The dollar was up , nearing Wednesday's three-month high of 121.88. The yen had fallen earlier as investors marched back into carry trades after cutting some risky positions overnight.

Political concerns also took their toll on the yen after a report from Japan's Kyodo news agency saying North Korea had fired several short range missiles into the Sea of Japan.

After the existing home sales data, rate futures were reflecting a 60% chance the Fed will lower rates by a quarter percentage point by the end of 2007, above a low of 42% Thursday, but still in stark contrast to early this year when more than one rate cut was priced in.

"This number (U.S. existing home sales) wasn't disappointing enough to get people thinking again that the Fed may cut after all," said David Watt, senior currency strategist, at RBC Capital Markets in Toronto. "We'll have to wait to wait until next week to assess the Fed outlook and the situation for the U.S. dollar."

The Canadian dollar , meanwhile, jumped to a fresh 29-1/2 year high against the greenback, piercing C$1.0800, due to higher oil prices and expectations for a hawkish statement from the Bank of Canada next week.

Next week, markets will be looking at a slew of U.S. economic data, led by the all-important nonfarm payrolls report for May. The jobs data will be released on Friday. The reports could shed more light on where the U.S. economy and interest rates are headed.

The U.S. economy has shown some signs of life after a fairly low payroll number in April. Analysts will be looking for some recovery in employment this month. The consensus forecast is for new jobs of 130,000, according to a Reuters poll.

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