Dollar May Fall on Bets U.S. Housing Gain to Pare Safety Demand

March 26 (Bloomberg) -- The dollar may extend its decline against the euro on speculation an unexpected increase in U.S. new-home sales and durable-goods orders will reduce demand for the greenback as a refuge from global economic turmoil.

The 16-nation currency may strengthen for a second day against the yen on expectations Asian stocks will rise as risk appetite improves, hurting the appeal of Japan’s low-yielding currency.

“Extreme pessimism about the global economy is receding, triggering a stock rally,” said Yousuke Hosokawa, a senior currency dealer at Chuo Mitsui Trust and Banking Co. in Tokyo. “This is making investors more active so they feel like buying riskier assets.”

The dollar traded at $1.3588 per euro at 8:16 a.m. in Tokyo from $1.3583 late in New York yesterday, when it weakened as much as 1.2 percent, the biggest intraday decline since March 19. The dollar was at 97.56 yen from 97.54 yen. The euro traded at 132.56 yen from 132.48.

U.S. stocks rose, extending the best monthly rally in 17 years for the Standard & Poor’s 500 Index, which added 1 percent to 813.88 yesterday. It has jumped almost 11 percent in March for its best gain since 1991.

New-home sales in the U.S. increased 4.7 percent last month from a record low pace in January, a Commerce Department report yesterday showed, compared with a 2.9 decrease forecast by economists. Orders for durable goods climbed 3.4 percent in February, the biggest gain in more than a year, according to a separate report from the department.

Geithner’s Remarks

Dollar losses may be limited after Treasury Secretary Timothy Geithner predicted the greenback will maintain its role as the world’s primary reserve currency, clarifying earlier comments on a Chinese proposal to overhaul the global monetary system.

In response to a question at a Council on Foreign Relations event in New York on People’s Bank of China Governor Zhou Xiaochuan’s proposal regarding the use of special drawing rights, units of account used for member countries’ reserves with the International Monetary Fund, the Treasury secretary said earlier “we’re actually quite open to that suggestion.”

Zhou said March 23 in a report posted on the bank’s Web site that special drawing rights, monetary units valued against a composite of currencies, should also be used for international trade, financial transactions and commodity pricing. The IMF should aim in the longer term to create a “super-sovereign reserve currency,” Zhou said.

Weak Japanese Data

Demand for the yen may decline before a government report tomorrow that economists say may show Japan’s consumer prices were unchanged for a second month in February as the nation’s recession deepened.

Prices excluding fresh food were unchanged last month from a year earlier, according to the median estimate of 31 economists surveyed by Bloomberg News. The statistics bureau publishes the report tomorrow at 8:30 a.m. in Tokyo.

“Incoming data is likely to confirm the poor state of the Japanese economy,” said Hiroshi Maeba, deputy managing director of foreign-exchange trading at Nomura Securities Co. in Tokyo. “The yen may be sold on weak data.”

The closely-watched Tankan index of the Bank of Japan measuring confidence among large makers of cars and electronics dropped to minus 55 from minus 24, according to the median estimate of economists surveyed by Bloomberg News. A negative number means pessimists outnumber optimists. The report will be released April 1.