FOREX-Dollar hamstrung by budget impasse, direction lacking
* Dollar pinned down as U.S. budget crisis looms
* Dollar index not far off a 7-mth trough
* Norwegian crown a notable loser after disappointing data
By Ian Chua
SYDNEY, Sept 26 (Reuters) - The U.S. dollar struggled to make any headway in Asia on Thursday, having lost ground overnight as the United States made little progress in averting a government shutdown next week or on raising the limit on its borrowing.
Further weighing on the dollar, U.S. Treasury yields slipped on the back of disappointing data that supported the outlook for accommodative monetary policy.
U.S. figures on Wednesday showed orders for long-lasting manufactured goods barely grew in August, while sales of new homes last month were near their lowest level of the year.
The dollar index traded at 80.358, after slipping 0.3 percent on Wednesday. The pullback saw the index stay near a 7-month trough of 80.060 plumbed on Sept. 18, when the Federal Reserve stunned markets by maintaining its massive stimulus programme against expectations of a modest cut.
Part of the reason the Fed did not scale back stimulus was because it saw potential headwinds stemming from a looming U.S. budget crisis due to a political impasse.
Both the debt ceiling and government funding issues have been complicated by Republican attempts to use the must-do bills to gut President Barack Obama's signature healthcare law. Democrats are fighting to kill any such efforts.
Still, investors are unwilling to get too bearish on the dollar, given that many expect an eleventh-hour breakthrough.
"Between now and Monday evening, we expect Congress to pass a continuing resolution (CR) that funds the government to at least November 15, if not longer," Deutsche Bank economists wrote in a client note.
"If a CR is passed in time, or if the government closes for only a day or so, the probability of a debt ceiling impasse is reduced. Critically, under no circumstance do we expect the Treasury to default on its obligations."
As well, any unexpected strength in U.S. data will likely reignite speculation of a December, or maybe even an October, Fed taper, a risk for any dollar bears.
The final reading of U.S. second quarter gross domestic product is due later on Thursday, followed by the all-important non-farm payrolls next week.
With the dollar on the backfoot for now, the euro has once again popped back above $1.3500, from a low of $1.3462 on Wednesday. It last traded at $1.3519.
Against the yen, the dollar slipped to 98.49 from Wednesday's high of 98.82, while the euro drifted up to 133.16 from 132.66.
A notable mover was the Norwegian crown, which fell sharply against the euro after data showed the country's unemployment rate unexpectedly rose to 3.6 percent in the three months to August, well above expectations for 3.4 percent.
The euro rallied around 1 percent to as far as 8.1555 crowns , its highest level since Aug. 23. It was last at 8.1223 crown.
Among commodity currencies, the New Zealand dollar found a steadier footing around $0.8245, having come under pressure since reaching a 4-month peak of $0.8445 early this week.
There are no major market-moving data due in Asia on Thursday, leaving the focus on equity market performance and U.S. data.
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