* Dollar gets modest bid as investors balance portfolios
* Dismal housing, growth data weigh on US economic outlook
* U.S. firms forced to reduce costs; GM, Ford ratings cut
* Trading desks thin out as holidays approach
(Recasts, adds U.S. data, adds comment)
By Steven C. Johnson
NEW YORK, Dec 23 (Reuters) - The dollar edged up against
most major currencies in thin pre-holiday trade on Tuesday as
year-end demand for the greenback blunted another round of grim
economic data that suggested a prolonged U.S. recession ahead.
Analysts said investors who needed to close the books on
2008 were buying back dollars to rebalance their portfolios,
lending the U.S. currency modest support in midday trade.
But those taking the longer view said the prospects for the
U.S. economy and currency remain worrisome, particularly after
data on Tuesday confirmed the economy shrank 0.5 percent in the
third quarter while home sales continued to decline.
"It's the last full trading day of the year, so there's
excess dollar demand for rebalancing," said Brian Dolan, chief
currency strategist at Forex.com in Bedminster, New Jersey.
"But the data are still very grim and after seeing the
third-quarter GDP, the market is prepared to see the economy
contract by 4 or even 5 percent in the fourth quarter."
Around midday in New York, the dollar was changing hands at
90.56 yen <JPY=>, up 0.5 percent on the day but not far from
last week's 13-1/2-year low near 87 yen.
The euro rose 0.6 percent to 126.37 yen <EURJPY=> and 0.1
percent to $1.3955 <EUR=>, well off a $1.4020 session high.
Sterling fell 0.6 percent to $1.4739 <GBP=>, hit by data
showing the UK economy contracted 0.6 percent between July and
September. The euro rose 0.9 percent to 94.79 pence <EURGBP=>,
setting up a possible move to parity over the coming weeks.
The dollar fell 0.7 percent to 1.0850 Swiss francs <CHF=>
but rose sharply against the Australian <AUD=> and New Zealand
<NZD=> dollars.
Sharp declines in the number of U.S. existing and new homes
sold in November bolstered the grim outlook for the U.S.
economy.[].
Also causing concern was news that big U.S. manufacturers
were slashing costs. Caterpillar Inc said it would cut
white-collar pay by up to 50 percent and Textron Inc announced
2,200 job cuts worldwide [].
Concerns over the prospects for U.S. automakers also
mounted as ratings agency Standard & Poor's cut its unsecured
debt rating on General Motors <GM.N> to 'C' [] and
Moody's lowered ratings on Ford <F.N> to 'Caa3' [].
"We have had a litany of bad news on the U.S. economy over
the past 24 hours and this continued negative news will weigh
on the dollar," Bank of New York-Mellon head of currency
research Simon Derrick said.
The economic outlook for the 15 countries that use the euro
also remained bleak, with the currency market expecting the
European Central Bank to cut benchmark interest rates in
January from their current 2.5 percent.
A worsening U.S. economy prompted the Federal Reserve to
slash interest rates to near zero last week, erasing what was
left of the dollar's yield appeal.
The Bank of Japan followed suit in Japan, while markets
expect the Bank of England to cut rates aggressively in early
2009 as well, particularly after Tuesday's growth data.
(Additional reporting by Naomi Tajitsu in London; Editing
by Chizu Nomiyama)
