Dollar steadies after data shows US economy stable

TOKYO, Dec 29 (Reuters) The dollar steadied on Friday after paring losses in the previous session on a raft of data that showed the U.S. economy may be in better shape than earlier thought.

The U.S. currency has come under pressure in the past few months, especially against European currencies, on expectations that the slowing economy could force the Federal Reserve to start cutting interest rates next year.

The dollar fell on Thursday after a member of the European Central Bank Governing Council said that euro zone rates remain low in historical terms, highlighting the risk that the dollar's rate advantage could narrow further.

Stronger-than-expected monthly readings for existing homes sales, consumer confidence, and the Chicago manufacturing index helped the dollar to trim losses on Thursday, though the currency ended lower on the day.

''It is rather puzzling that market participants are not buying the dollar much despite the strong data,'' said a trader at a big Japanese bank. ''Players are staying bearish on the currency.'' Traders said that market activity in Tokyo was subdued on Friday, with many fund managers already gone for year-end holidays. Many Japanese companies finished this year's business on Thursday.

With no major economic indicators due in Japan, Europe and the United States, major currencies are expected to shuffle in ranges for the rest of the session.

In early Asian trade, the dollar was little changed at 118.95 yen, short of a two-month peak of 119.23 yen marked on Tuesday.

The euro edged down to $1.3140 after rising 0.2 percent a day earlier. It was at 156.30 yen, off the record high of 156.73 yen hit on Thursday.

Expectations that the ECB will further boost rates next year helped the euro to find favour.

''It is easy for investors to chase the euro as it is clear that the currency's yield will continue to rise,'' said Nobuo Ibaraki, forex manager at Nomura Trust and Banking.

Reuters SBA VP0634