The U.S. dollar fell against the euro and a basket of currencies on Tuesday as weak U.S. housing data and a dim economic outlook for the start of 2009 weighed on the currency.

The contrast of aggressive monetary easing in the United States versus a more cautious European Central Bank is lending support to the euro while hurting the greenback, analysts said.

Some market participants also cited the ongoing conflict in Gaza and Israel, as supporting the Swiss franc near a five-month high.

Meanwhile, sterling continued its downtrend, hitting a 6-1/2 year low against the U.S. dollar and hovering near record lows in sight of parity against the euro on prospects of UK interest rates being cut further amid a deep economic downturn.

In morning trading in New York, the euro was up 1.2 percent on the day at $1.4148, according to Reuters data.

“The Fed continues to be extremely proactive while the ECB has been much more cautious,” said Jessica Hoversen, a fixed income and currency analyst at MF Global Ltd. in Chicago. “As a result, we have the end of the year yield differentials between the two regions that favor the euro, at least for now.”

U.S. interest rates are close to zero and policymakers have said they are ready to take more unconventional steps of providing liquidity to bolster the moribund economy.

In contrast, key interest rates in the euro zone stand at 2.5 percent, and policymakers have been unclear about how much rates will be cut further in the near future.

Hoversen added thin market conditions during the holidays and a weak outlook for key U.S. sectors, such as housing, may help push the dollar lower in the next couple of days.

Prices of U.S. single-family homes in October plunged a record 18.0 percent from a year earlier, according to the Standard & Poor’s/Case-Shiller Home Prices Indices released on Tuesday.

“The numbers are certainly very bad,” said Kathy Lien, director of FX research at GFT Forex in New York. “But there is one silver lining though. The pace of the decline seems to have slowed during the month.”

The U.S. dollar index slipped about one percent against a basket of currencies to 80.595.

EURO NEARS PARITY

Sterling fell as low as $1.4385, its weakest since early 2002, according to Reuters data, while the euro rose 1.4 percent to 97.79 pence, hovering near a record high of 98 pence hit on Monday.

“The market has been focusing a lot on the weakness in the U.K. economy,” said Hoversen at MF. “It seems the pound will be ‘forced’ to touch parity with the euro pretty soon.”

Demand for the Swiss franc rose since Monday after the Israeli attacks at Gaza had triggered so-called “safe-haven” demand for the Swiss currency and gold. The dollar was last slightly lower at 1.0586 , after trading as low as 1.0367 francs on Monday, its weakest since late July,

The dollar slipped 0.2 percent to 90.36 yen, inching lower to 87.13 yen hit earlier in the month, its weakest since mid-1995.

Data highlights on Tuesday also include a release on consumer confidence in December and a reading of factory activity by the Institute of Supply Management.

NEW YORK, Dec 30 (Reuters)

• Crude prices rose back above $40 a barrel yesterday (Monday), as Israel and Palestinian forces exchanged fire and casualties mounted in the region. Light, sweet crude for February delivery rose $2.31 cents to settle at $40.02 a barrel on the New York Mercantile Exchange.

• A group of investment firms that includes J.C. Flowers & Co., Dune Capital Management, and Paulson & Co., is set to purchase IndyMac Bank, one of the nation’s largest failed banks, from the Federal Deposit Insurance Corp. (FDIC) according to CNNMoney. Neither the FDIC nor any of the potential buyers have commented, but the agency has said it expects the deal to be announced by yearend.

• Retailers may close 73,000 stores in the first half of 2009, the International Council of Shopping Centers said yesterday (Monday). More than a dozen retailers, including Circuit City Stores Inc., Linens ‘n Things Inc., Sharper Image Corp. and Steve & Barry’s LLC, have already sought bankruptcy protection this year, Bloomberg News reported.

• The interest rate on six-month U.S. Treasury bills fell to its lowest level ever at this week’s government auction. The Treasury Department yesterday (Monday) said it auctioned $27 billion in six-month bills at a yield of 0.25%, down from a rate of 0.285% last week, and an all-time low. The department also auctioned $26 billion in three-month bills at a yield of 0.05%, a slight increase from last week’s 0.04%.

• Commercial banks in the United States reported $6 billion in third-quarter revenue from trading foreign exchange, interest-rate and other derivative instruments, the Office of the Comptroller of the Currency said yesterday (Monday). That is significantly more than the $1.6 billion of trading revenue banks reported in the second quarter.

Source: Global Investing Roundups Tuesday, December 30th, 2008

Oil fell below $40 a barrel on Tuesday, pressured by gloom about prospects for world economic growth which outweighed heightened tensions in the Middle East due to the Israeli-Hamas conflict.

Prices had jumped as much as 12 percent on Monday after Israel launched its fiercest air offensive in the Hamas-ruled Gaza strip in decades.

U.S. crude was down 77 cents at $39.25 a barrel by 1151 GMT, having earlier touched a session high of $40.39.

London Brent fell 60 cents to $39.95.

“With most global economies struggling and credit markets still in an impaired state, it is hard to get too excited about the upside potential in energy markets attributable solely to geopolitical factors unless, of course, these are directed at the heart of the oil supply system,” said Edward Meir of futures broker MF Global.

Oil is heading for a loss of nearly 60 percent this year, its biggest annual fall since futures began trading 25 years ago. It has dropped more than $100 from a record peak above $147 a barrel in July.

“People are still wary of the global economic problems. There is still pessimistic news coming out of the States,” said Gerard Rigby, an analyst at Fuel First Consulting in Sydney.

He said he would also be watching the dollar and stock markets moves.

The dollar slipped against the euro and a basket of currencies, depressed partly by the Israeli offensive, which has helped to dampen dollar sentiment.

The Organization of the Petroleum Exporting Countries has agreed its biggest-ever production cut of 2.2 million barrels per day (bpd) to fight the oil market slide.

The group has cut output three times in an effort to remove about 5 percent of world supply.

OPEC oil supply, excluding Iraq and Indonesia, is expected to fall by 400,000 barrels per day in December as members boost compliance with their deal to reduce output, consultant Petrologistics said.

The estimate indicates OPEC has more than delivered on its pledge to lower supply from 11 members to 27.3 million barrels per day from Nov.1 to prop up prices.

A poll of analysts forecast that U.S. crude stocks will have fallen by 1.4 million barrels last week, while distillate inventories will have risen by 1 million barrels and gasoline stocks increased by 1.5 million barrels.

Weekly U.S. fuel inventory data is due on Wednesday.

LONDON, Dec 30 (Reuters)