Dollar hovers near record low vs euro

TOKYO, Apr 19 (Reuters) The dollar hovered near a record low against the euro and a 26-year low versus sterling on Thursday, dragged down by expectations for U.S. interest rate cuts while a monetary tightening outlook supported other currencies.

Data showing rising U.S. home foreclosures and falling mortgage applications raised concerns that the housing sector woes could hurt the economy, reinforcing views that the Federal Reserve would cut interest rates later this year.

Housing figures followed tame consumer prices data earlier in the week which helped ease inflation concerns.

In contrast to sluggish U.S. data, growth prospects are solid and inflationary pressure remains high in other countries, with major central banks such as the Bank of England and the European Central Bank seen boosting interest rates in coming months.

''The market is solely focused on interest rates and this trend will not change any time soon,'' said a senior trader at an European bank.

''Trading is justified by economic fundamentals and as long as the reason is clear, it is difficult to turn around the trend.

There is no sense that the euro or other high-yielding currencies are overbought,'' he said.

The euro rose to a two-year high around $1.3620 on Thursday, inching closer to a record high of $1.3670.

Against sterling, the dollar was at $2.0070 down 0.1 percent.

Sterling jumped to a 26-year high against the dollar at $2.0133 on Wednesday on expectations the BoE will raise interest rates by at least 25 basis points to 5.5 percent in May, which would top the U.S. federal funds rate.

The yen, which has been suffering due to Japan's low interest rates, moved away from a record low against the euro as investors took profits on short positions.

The euro was at 161.05 yen down 0.2 percent.

The dollar fell about 0.2 percent to 118.35 yen The yen gained slightly after data showing Japan's tertiary sector index of service industry activity rose 1.0 percent in February from January, well above a 0.4 percent rise forecast.

The data signalled a rebound in consumption on the back of a steady economic recovery and raised speculation of another Bank of Japan rate hike later this year.

Reuters HK VP0630