* Euro gains vs dollar, pulls back from 1-year low vs yen
* Traders cover extreme shorts in euro
* U.S. Q4 GDP data higher than previously thought
* U.S. existing home sales drags dollar/yen lower
(Adds comments, details, byline)
By Gertrude Chavez-Dreyfuss and Vivianne Rodrigues
NEW YORK, Feb 26 (Reuters) - The U.S. dollar fell against
the euro on Friday as investors pared extreme short positions
in the euro on the last business day of the month after its
recent declines.
The euro hit a session high after Bloomberg reported that
Germany may buy Greek bonds through lender KfW Group. Reuters
had reported on Feb. 11 that Germany was considering using KFW
to buy Greek debt. []
Greece has been at the center of the euro's struggles the
last few months, with its fiscal debt this year estimated at
more than 120 percent of gross domestic product, the highest of
any euro zone member.
A rise in global stocks and commodities reduced safe-haven
bids on the dollar and boosted commodity-linked currencies such
as the Australian and New Zealand dollars.
"The bigger narrative remains in Europe and in the absence
of negative news today we are seeing the euro consolidating a
bit. The gains seem to be a result of short-covering" on the
euro, said Greg Salvaggio, senior vice president for capital
markets at Tempus Consulting in Washington.
Salvaggio said that while the report on the German bank
buying Greek debt lifted the single currency, he wasn't reading
too much into Friday's price action, because the market
"remains incredibly bearish" on the euro zone.
As economic data and "the situation in Europe continues to
deteriorate," the currency will be under tremendous pressure,
he said.
In afternoon trading in New York, the euro <EUR=> was up
0.4 percent at $1.3612, helped by a rise in European shares
<>.
Against the yen <EURJPY=R> the euro was 0.1 percent higher
on the day at 120.83 yen, after falling as low as 119.66 yen on
electronic trading platform EBS on Thursday, its weakest since
February 2009.
Friday's U.S. data was mixed, but overall showed the U.S.
economy is slowly recovering, particularly with strong gross
domestic product growth for the fourth quarter and a rise in a
key U.S. Midwest manufacturing index. For a data wrapup, click
on [].
Still, after the dollar rose about 1.5 percent in February
versus the euro, the greenback was bound for an
end-of-the-month correction, analysts said.
"This is all related to month-end fixing," said Jacob
Oubina, a senior currency strategist at FOREX.com, in
Bedminster, New Jersey. "As global portfolio managers rebalance
their portfolios for the month end, they need to buy euros and
sell dollars."
The latest data from the Commodity Futures Trading
Commission showed the euro shorts hitting a record high last
week.
EURO REPRIEVE
Some traders said sentiment favoring the euro on Friday was
also boosted by its sharp rise to a six-week high against
sterling, which came under broad selling pressure after
above-forecast gross domestic product data failed to offset
deeper worries over the UK economy. []
The euro <EURGBP=D4> rose as high as 89.72 pence, its
strongest since mid-January.
The dollar <JPY=> was down 0.2 percent at 88.85 yen. And
the ICE Futures' dollar index <.DXY> declined 0.4 percent on
the day at 80.44, but still up on the month.
Data showing U.S. existing-home sales fell unexpectedly in
January weighed on the dollar against the yen, briefly knocking
down Wall Street shares as well.
(Additional reporting by Wanfeng Zhou; Editing by Kenneth
Barry)
