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Dollar drops vs. euro on housing figures

NEW YORK (Reuters) - The dollar fell against the euro on Thursday, extending losses a day after a weak US housing report, as investors sought to lock in gains on the greenback's recent rally.

The dollar's losses were limited, though, after a separate report showed a rise in US durable goods orders for November and a drop in initial jobless claims in the latest week. That rekindled optimism about the prospects for a recovery.

Trade was extremely thin in Europe and the US ahead of Friday's Christmas holiday, and traders were wary of reading too much into current price movements.

"We moved in very much of a straight-line fashion with the dollar higher and euro lower for the last three weeks," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey. "We're long overdue for a correction."

The data "is all pretty solid and continues the trend of data signifying improvement in the US economy. The trend lately has been for the dollar to respond more directly to positive numbers", he added.

The euro rose 0.2 percent to $1.4355, after climbing to a session peak of $1.4418, according to Reuters data.

The single euro zone currency dipped near $1.42 this week, dented by concerns about sovereign ratings after a third ratings agency downgraded Greece's debt. The euro is down 4.3 percent against the dollar so far this month and on course for its biggest monthly fall since January.

On Wednesday, a report showing US new home sales unexpectedly fell to their lowest level in seven months in November had pushed the dollar down and lifted the euro, yen and other major currencies off recent lows.

"The new home sales data was the catalyst to push the dollar lower - the market has become used to a flow of upside surprises in US numbers recently and this has just taken a bit of the shine off the dollar," said Adam Cole, global head of FX strategy at RBC Capital Markets in London.

"But until we get back to more normal liquidity conditions it is difficult to draw too many conclusions from the current price action," he said.

Against the yen, the dollar was little changed at 91.61 yen after touching a two-month high of 91.87 yen this week, according to Reuters data. Japanese markets will be open on Friday when London and New York are shut. Sterling was little changed at $1.5944.

The ICE Futures US dollar index, a gauge of the greenback against six other major currencies, was down 0.1 percent 77.841, not far from this week's three-and-half-month high of 78.449.

The dollar remained close to recent highs, but some analysts said charts showed momentum for the dollar's move up against the euro and yen - aided by year-end closing of short positions against the greenback - may be tailing off.

"I think the adjustment of the dollar and the US yield is probably near the end," said Tohru Sasaki, chief FX strategist Japan at JP Morgan Securities in Tokyo.