(Recasts, updates prices)
* Dollar tumbles on bearish consumer sentiment data
* U.S. consumer confidence dives to 28-year low
* U.S. housing starts rise unexpectedly in April
By Lucia Mutikani
NEW YORK, May 16 (Reuters) - The dollar fell on Friday as a
plunge in U.S. consumer confidence raised the specter of a
contraction in second quarter growth and trimmed the chances
the Federal Reserve will raise interest rates this year.
The unexpectedly sharp drop in consumer sentiment to a
28-year low in May eclipsed a report showing a rebound in
building permits and construction starts for new U.S. homes,
which briefly triggered some dollar buying.
"Consumer sentiment data are closely tied to consumer
spending levels," said Andrew Busch, global FX strategist at
BOM Capital Markets in Chicago.
"It really shows that the consumer is likely going to have
low levels of spending which could translate into a quarter
where we have negative GDP growth if this continues into
June."
Consumer spending accounts for about two-thirds of the
United States' gross domestic product.
The euro raced to a session peak of $1.5600. It was last
trading at $1.5588 <EUR=>, up 0.9 percent on the day. The
dollar tumbled to an intraday low of 103.54 yen <JPY=> and was
last quoted at 103.93 yen, down 0.9 percent.
The New York Board of Trade's dollar index, which charts
the dollar's performance against a basket of six currencies,
fell to a session trough of 72.687 <.DXY>.
Speculation that April's non-farm payrolls report would be
revised to show deeper job losses than the initially reported
20,000 contraction probably added to the dollar's slide, but
analysts were sceptical. Combined figures from the country's
various states indicated job losses of 151,000 in April.
"The market should not look at this as an inevitable
downward revision that is in the works for the April data. I
don't think this is the best reason to sell dollars," said Alan
Ruskin, chief international strategist at RBS Greenwich Capital
in Greenwich Connecticut.
SENTIMENT PLUMMETS
The dollar has rallied in recent weeks on views that the
Fed's cycle of interest rate cuts was nearing an end.
A pause by the U.S. central bank after slashing its fed
funds rates target by 3.25 percentage points to 2 percent since
mid-September would support the dollar, which has lost its
yield appeal to the euro.
Euro-zone interest rates have remained at 4 percent since
June, but analysts reckon slower economic growth could force
the European Central Bank to move towards an easing path later
this year.
"The dollar has appreciated over the last couple of months
based on this change in attitude towards what the Fed is going
to be doing with interest rates," said Busch.
"But we are certainly not at a point where we are going to
consider that the Fed will start to raise rates at any point
and that's why see the dollar losing ground today."
U.S. interest rate futures were pricing an 88 percent
chance that the central bank would leave its benchmark rate
steady in June. This was down from a 92 percent perceived
chance earlier. Prospects for a rate hike by year end have
fallen to 78 percent from more than 100 percent.
The Reuters/University of Michigan Surveys of Consumers
said its preliminary index of confidence fell more sharply than
economists had expected in May to its lowest since June 1980.
Housing starts in April ran at a 1.032-million-unit annual
rate, up from a revised 954,000-unit rate in March, while
permits gained 4.9 percent to 978,000 a year from a revised
932,000 in March.
The high-yielding Australian dollar rose sharply against
the U.S. currency, on views Australian interest rates were
unlikely to fall after the central bank governor said fighting
inflation remained a priority.
The Aussie jumped 1.6 percent to US$0.9547 <AUD=>. The New
Zealand dollar also surged on the coattails on its Australian
counterpart. It was last up 1.4 percent at US$0.7739 <NZD=>.
(Editing by Tom Hals)
