FOREX-Bearish US consumer confidence data batters dollar

(Recasts, updates prices)

* Dollar tumbles on bearish consumer sentiment data

* U.S. consumer confidence dives to 28-year low

* U.S. housing starts rise unexpectedly in April

By Lucia Mutikani

NEW YORK, May 16 (Reuters) - The dollar fell on Friday as a plunge in U.S. consumer confidence raised the specter of a contraction in second quarter growth and trimmed the chances the Federal Reserve will raise interest rates this year.

The unexpectedly sharp drop in consumer sentiment to a 28-year low in May eclipsed a report showing a rebound in building permits and construction starts for new U.S. homes, which briefly triggered some dollar buying.

"Consumer sentiment data are closely tied to consumer spending levels," said Andrew Busch, global FX strategist at BOM Capital Markets in Chicago.

"It really shows that the consumer is likely going to have low levels of spending which could translate into a quarter where we have negative GDP growth if this continues into June."

Consumer spending accounts for about two-thirds of the United States' gross domestic product.

The euro raced to a session peak of $1.5600. It was last trading at $1.5588 EUR=, up 0.9 percent on the day. The dollar tumbled to an intraday low of 103.54 yen JPY= and was last quoted at 103.93 yen, down 0.9 percent.

The New York Board of Trade's dollar index, which charts the dollar's performance against a basket of six currencies, fell to a session trough of 72.687 .DXY.

Speculation that April's non-farm payrolls report would be revised to show deeper job losses than the initially reported 20,000 contraction probably added to the dollar's slide, but analysts were sceptical. Combined figures from the country's various states indicated job losses of 151,000 in April.

"The market should not look at this as an inevitable downward revision that is in the works for the April data. I don't think this is the best reason to sell dollars," said Alan Ruskin, chief international strategist at RBS Greenwich Capital in Greenwich Connecticut.

SENTIMENT PLUMMETS

The dollar has rallied in recent weeks on views that the Fed's cycle of interest rate cuts was nearing an end.