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* Dollar/yen dips, still close to highest in nearly 3 weeks
* Euro holds steady, dollar index all but flat
* Data on U.S. durable goods due later on Monday
By Anirban Nag
LONDON, Aug 26 The dollar slipped against the yen on Monday, hurt by a dip in U.S. bond yields after disappointing housing data on Friday raised uncertainty about an early withdrawal of stimulus by the Federal Reserve.
Traders said if consumer durables data, due at 1230 GMT, turned out weaker than expected, the dollar could drop further. Forecasts are for demand for durable goods to drop in July from a month earlier.
In trading thinned by a holiday in London, the dollar slipped 0.15 percent to 98.58 yen, below Friday's high of 99.15 yen, the U.S. currency's highest level since Aug. 5.
The euro was flat at $1.3373 while the dollar index, which is strongly correlated with 10-year U.S. yields, was steady at 81.417, off a recent one-week high of 81.719. The 10-year bond yield fell on Friday after a steep drop in U.S. new home sales.
"With a notably more fragile housing market the Fed will find it impossible to begin tapering bond purchases as early as September, many FX traders might argue. I am not so certain," said Ulrich Leuchtmann, currency strategist at Commerzbank.
He said the Fed should start withdrawing stimulus and normalise interest rates to prevent another housing bubble, despite higher mortgage rates hitting housing demand
"Should the ultra-doves maintain the upper hand in the Fed, and should they be prepared to accept a new property bubble in order to artificially lower the unemployment rate, that would be a negative signal for the U.S. currency," he said.
Any signs of sluggish consumer demand in the durable goods data should keep alive the debate on whether the Fed will start tapering stimulus next month, as many expect, or not.
"The release of durable goods orders should keep the dollar on the defensive," BNP Paribas analysts said in a note. "The tapering debate will likely continue and we suspect that any further comments from Fed officials will not deliver a clear verdict on the prospects for September tapering."
Many still think the Fed will begin withdrawing stimulus in September, but a lot will depend on the August payrolls report due on Sept. 6. Analysts say it would take a very weak reading to push back the start date.
"Ultimately, we believe that timing of tapering will be less important for the dollar than the ability of the U.S. economy to generate faster growth over the last two quarters of the year," the BNP Paribas note added.
"We stick with a long dollar/yen position for now."
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