* Optimism about global economy dampens safe-haven demand
* Dollar losses limited by record low U.S. housing starts
* Strong German ZEW sentiment survey lifts sentiment
* Sterling rises, Aussie dollar hits seven-month high
(Adds quotes, updates prices, changes byline)
By Wanfeng Zhou
NEW YORK, May 19 (Reuters) - The U.S. dollar fell against
major currencies on Tuesday as growing optimism that the global
recession is moderating dented the greenback's safe-haven
allure.
Data showing improving business sentiment in Germany and
news that several major U.S. banks are asking to repay
emergency funds they received from the government helped lift
investor appetite for risk.
The dollar's losses were limited, though, by a report
showing U.S. housing starts declined sharply to a record low
last month.
"I think the key driver right now for the FX market is the
outlook for global growth," said Camilla Sutton, senior
currency strategist at Scotia Capital in Toronto.
"What we've seen in the last 24 hours are some indications
that have given reason for the market to expect a little bit
better global growth outlook than they had at the end of last
week."
The greenback tends to fall when risk appetite rises as
investors move money out of safe-haven dollar-denominated
assets into riskier investments. Hopes that the global economy
has turned a corner have stung the dollar in recent sessions.
In afternoon trading in New York, the ICE Futures' dollar
index, a measure of the dollar's value against six major
currencies, fell 0.5 percent to 82.138 <.DXY>.
The dollar index has lost more than 5 percent since it hit
a roughly one-month high in April.
The euro traded at $1.3621 <EUR=>, up 0.5 percent on the
day, although it was off the day's highs at $1.3655.
German data showed investors and analysts grew much more
optimistic in May that economic conditions will be better late
this year, with the monthly ZEW poll on economic sentiment
hitting its highest since June 2006. For more, see
[].
Technical analysts now expect the euro to test last week's
high around $1.3721; a breach could pave the way for a move
toward $1.40.
The euro rose 0.4 percent against the yen to 130.89
<EURJPY=>, while the dollar was off 0.2 percent at 96.10 yen
<JPY=>.
NOT A "STRAIGHT-LINE"
Analysts said the data showing U.S. housing starts and
permits unexpectedly fell to record lows in April doused the
view that the housing market was stabilizing, denting optimism
in the market. For more, see [].
But they pointed out that as an economy recovers from any
recession, some disappointing data is normal.
"We're not going to have a straight-line recovery," said
Brian Kim, currency strategist at UBS in Stamford, Connecticut.
"We may be hitting a bottom, but we still need time for reality
to catch up with expectations."
Sterling <GBP=D4> jumped against the dollar, rallying above
$1.55 to its highest level of the year. It last traded at
$1.5483, up 0.9 percent on the day.
The pound had gained after a report earlier that Britain
has held talks with investors to gauge interest in buying
stakes in partly nationalized lenders. [].
The Australian dollar hit a seven-month high near US$0.7770
<AUD=D4> and was last up 1.3 percent at US$0.7749, boosted by a
rise in oil prices. The New Zealand dollar <NZD=> rose 1.3
percent to US$0.6019.
(Additional reporting by Gertrude Chavez-Dreyfuss; Editing by
Chizu Nomiyama)
