FOREX-Dollar rises as data supports U.S. rates outlook

(Adds details, updates prices, changes byline)

*Dollar rallies broadly

*U.S. durable goods orders fall less than expected

*Inflation accelerates in Germany

NEW YORK, May 28 (Reuters) - The dollar rose broadly on Wednesday as a better-than-expected report on U.S. durable goods orders for April bolstered the view the Federal Reserve may keep interest rates on hold or even raise them by year-end.

Demand for the greenback also rose after reports showed rising German inflation and oil prices eased from recent record highs.

New orders for long-lasting U.S. goods fell 0.5 percent last month, lower than the 1 percent drop expected by analysts in a Reuters poll. Stripping out transportation, orders rose 2.5 percent, the biggest gain since July, the Commerce Department said. For details, see [ID:nN28333532]

"It's another instance of a negative number, but one that's better than expectations, and that's probably going to end up helping the dollar," said Shaun Osborne, a senior currency strategist, at TD Securities, in Toronto.

U.S. short-term interest rate futures show that investors widely expect the Federal Reserve to raise interest rates by a quarter percentage point to 2.25 percent by year-end.

"These numbers bode well for those looking to the Fed to possibly raise rates toward the end of this year and will likely support the dollar throughout the session," said Omer Esiner, a currency analyst at Ruesch International in Washington.

In late trading in New York, the euro was last down 0.2 percent at $1.5646 EUR=. The dollar also rallied 0.3 percent against a basket of six currencies to trade at 72.547 .DXY.

The dollar earlier traded at a two-week high against the yen at 105.32, but it pared some of its gains and was last up 0.4 percent at 104.68 JPY=.

"People are still inclined to buy the dollar after we broke above 104.90 resistance in dollar-yen and below euro-dollar short-term support around 1.5640," Osborne added.

INFLATION FEARS

In Germany, annual inflation in three states topped 3 percent in May, highlighting upside risks to the reading for the euro zone's biggest economy, due later on Wednesday.

The data supported expectations for the European Central Bank to retain its hawkish, inflation-fighting stance despite signs of an economic slowdown seen in recent sentiment surveys from euro zone member states.

Other data in Europe showed the outflow of investment from the euro zone accelerated in March.

Analysts said the euro may still rebound to recent one-month highs even after weak data as the ECB's policy stance is seen unchanged.

"We had sentiment data from Europe yesterday which were weak, so of course we get people nervous about second quarter activity, and then we get CPI numbers today underlining the fact that Europe has an inflation issue -- so that muddies the water," said Calyon senior currency strategist Daragh Maher.

Oil prices traded well below last week's record at $135.09 a barrel. Surging oil prices have fanned fears about the ability of U.S. consumers and businesses to weather the credit- and housing market-led downturn. (Additional reporting by Steven C. Johnson in New York and Veronica Brown in London) (Reporting by Nick Olivari and Vivianne Rodrigues; editing by Gary Crosse)