FOREX-Dollar falls on soft data; Bhutto death unsettles

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NEW YORK, Dec 27 (Reuters) - The dollar dropped against the euro on Thursday, its fifth straight daily decline, after a weaker-than-expected U.S. durable goods report boosted the case for more Federal Reserve interest rate cuts next year.

The assassination of Pakistani opposition leader Benazir Bhutto in Rawalpindi also unsettled investors, lifting safe-haven assets such as gold and the Swiss franc and adding to dollar selling.

Analysts said holiday-thinned trade was exaggerating the moves, though they said concern about the U.S. economy was feeding renewed negative dollar sentiment.

The biggest blow for the dollar came from a report showing orders for U.S. durable goods, such as computers and appliances, rose by just 0.1 percent in November, well below economists' forecasts. For details, see [ID:nN27394856]

The report came a day after the S&P/Case-Shiller index showed a record decline in U.S. home prices in October.

"The fall in the dollar was in keeping with the tone of the U.S. economic figures," said Nick Bennenbroek, head of currency strategy at Wells Fargo in New York.

The news from Pakistan did not help, as investors bought safe-haven assets on fear that Bhutto's death could spark regional instability and civil unrest within Pakistan. [ID:nISL309647]

Pakistan's Interior Ministry said paramilitary forces were on "red alert" and were empowered to ensure domestic security.

UBS strategists said in a note to clients that "an easing of market tension and calmer trading conditions will be needed before any reversal of today's moves."

Early afternoon in New York, the euro was at session highs around $1.4634 EUR=, up almost 1 percent on the day for its best level in nearly two weeks and the biggest one-day advance since Nov. 20.

The euro was on track for its fifth straight day of gains versus the greenback. With a 2.2 percent gain for the period, it was the biggest five-day advance since the period ended Nov. 30, 2006.

The euro also hit a record high against sterling at 73.39 pence EURGBP=.

The dollar was down 0.6 percent at 113.66 yen JPY=, reversing earlier gains that sent it to a seven-week high at 114.65 yen overnight, according to Reuters data. The dollar fell 1.1 percent to 1.1379 Swiss francs CHF=, a two-week low and at current prices the biggest one-day drop since July 10.

A U.S. report showing consumer confidence edged higher in December did little to alter the negative dollar tone.

"We fear that the major trend against the dollar is about to reassert itself," said Dennis Gartman, independent analyst and author of The Gartman Letter. If the euro holds its gains into 2008, he said he will reestablish short dollar positions.

Earlier this year, the euro surged to just shy of $1.50 as traders built up their bets against the greenback. A corrective dollar rally over the past month, though, has renewed two-way trade, with some saying the market is now poised to push the euro higher again.

Markets see the Fed cutting its 4.25 percent benchmark interest rate again next year, with a quarter-point cut expected in January.

That would diminish the dollar's yield advantage over the euro, as the European Central Bank has stressed inflation risks, suggesting it will not soon cut interest rates.

Greg Anderson, senior currency strategist at ABN AMRO in Chicago, said the Pakistan news contributed to dollar weakness but stressed that the market was predisposed to sell dollars.

"The news slightly boosted the Swiss franc and the euro, but the dollar was already offered all day yesterday and coming into the data today," he said. (Reporting by Nick Olivari and Steven C. Johnson; Editing by Leslie Adler)