Tokyo, Feb 27: The dollar hit a two-month low against the euro on Tuesday ahead of a string of econ

Tokyo, Feb 27: The dollar hit a two-month low against the euro on Tuesday ahead of a string of economic data that could raise expectations that a slowing U.S. economy may offer reasons for the Federal Reserve to cut rates this year.

The U.S. currency also stayed on the back foot against the yen as some investors continued to cover short positions in the Japanese currency after its broad slide last week.

''Focus had been on the yen until now, but the market is realising that the dollar isn't doing all that well either,'' said a trader at a major Japanese trading house.

Some market participants also said that dollar sentiment was sluggish due to concerns about rising default rates among high-risk borrowers in the U.S. subprime mortgage market, as well as growing tensions regarding Iran's nuclear programme.

The euro rose to $1.3205 on electronic trading platform EBS for the first time since early January, before pulling back to around $.3190.

The dollar was around 120.50 yen creeping down after peaking around 121.60 yen last week after an interest rate rise by the Bank of Japan did little to change the market's view that the yen's low rate was unlikely to catch up to currency rivals anytime soon.

The euro was at 158.90 yen The yen's rate view kept the currency near a record low of 159.63 hit against the single currency late last week.

Traders awaited January figures on U.S. durable goods and February consumer confidence later in the session.

Focus was also on existing home sales for January, given growing concerns about riskier mortgage deals, some of which have gone awry in the housing market downturn.

A Reuters poll shows that durable goods orders probably fell 2.5 percent last month, while the Conference Board's consumer confidence index is seen slipping from January.

At the same time, the pace of existing U.S. home sales likely edged up last month to an annual rate of 6.24 million from 6.22 million in December.

Focus was also on fourth quarter U.S. economic growth data due on Wednesday, which analysts expect will be revised down to 2.4 percent from an original estimate of 3.5 percent.

Weak data this week could add fuel to speculation that the Fed may lower rates from 5.25 percent at some point this year.

Reuters