* Dollar index falls, lending support to the euro
* Yen near four-year low vs euro, five-year vs GBP, 23-year
low vs Swiss
* Euro also helped by rising short-term money market rates
By Julie Haviv
NEW YORK, Nov 26 (Reuters) - The dollar dropped against a
basket of six major currencies on Tuesday, as lower U.S.
Treasury debt yields drove investors to trim long bets, giving a
fillip to the euro that has so far proven resilient despite talk
of looser monetary policy.
Expectations of month-end rebalancing flows by asset
managers could also see the dollar weaken against currencies
including the euro and the British pound.
The dollar slightly pared losses after data showed permits
for future U.S. home construction rose to their highest level in
nearly 5-1/2 years in October.
Separate data showed U.S. single-family home prices rose in
September and posted their strongest annualized gain in 7-1/2
The dollar index, which is dominated in composition
by the euro, fell to 80.636, its lowest since Nov. 20 and was
last down 0.2 percent at 80.770. The index has fallen as U.S.
10-year Treasury yields have fallen.
"The dollar's own issues about whether Fed tapering will
take place or not make the euro the next best alternative," said
Daragh Maher, currency strategist, at HSBC. "But the euro is
looking rather toppish here."
The euro was up 0.1 percent at $1.3528, having hit a
session high of $1.3571 and triggering stop loss buy orders
above $1.3560. Near-term resistance is at its Nov. 20 high of
Part of the reason for the euro holding up is some
speculation that euro zone inflation, due later in the week,
could show a slight rise in prices, pushing back expectations
that the European Central Bank will take further action to fight
disinflationary pressures in the near term.
Forecasts are for November euro zone flash inflation at 0.8
percent, year-on-year, up from 0.7 percent in October.
Last month, after a shock drop in inflation, the ECB cut rates
to a record low, pushing the euro to a near two-month trough.
"Inflation readings are starting to have a much greater
impact on currencies than before," added HSBC's Maher.
Also with excess liquidity in the euro zone
banking system dwindling to its lowest level since September
2011, short term market rates are climbing and helping the euro.
The euro was trading not far from a four-year high against
the yen at 137.34 yen.
The dollar, however, eased 0.1 percent at 101.54 yen,
pulling away from a six-month high of 101.91 yen hit on Monday
after data showed contracts to buy previously owned U.S. homes
hit a 10-month low in October.
The data raised questions about the economic recovery,
prompting profit-taking in the dollar, which had gained 1.9
percent versus the yen in three sessions.
"Short yen positions appear stretched and we have taken
profits in our long dollar/short yen position," said Yujiro
Gato, currency strategist at Nomura. "Dollar/yen should be
trading in a 100-102 range in the next five weeks with a drop to
100 and below a good level to go long on the dollar again."
Gato added new Japanese investment rules could also see some
buying of the yen against the dollar and other major currencies
by retail investors in the short term.
However, in the longer term the yen will remain weak on
expectations the Bank of Japan's commitment to an ultra-easy
policy will keep it the best funding currency for carry trades,
especially against European currencies.