March 17, 2009 / 1:25 PM / in 10 years

FOREX-Dollar slips vs euro as US housing starts jump

* US housing starts jump in February, helping euro

* Yen weakens as risk sentiment improves tentatively

* Stronger-than-expected German ZEW index

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By Vivianne Rodrigues

NEW YORK, March 17 (Reuters) - The dollar fell to trade little changed against the euro and rose versus the yen on Tuesday as a government report showed U.S. housing starts rose more than expected, diminishing demand for the greenback as a safe-haven.

The U.S. housing data followed stronger-than-expected results from Germany’s ZEW survey of sentiment towards the euro zone’s biggest economy.

The tentative improvement in risk sentiment weighed on the dollar and the yen. Traders were wary, however, ahead of U.S. and Japanese central bank policy-setting meetings which both end on Wednesday.

The housing starts report “is an encouraging sign for the U.S. economy,” said Matt Esteve, a foreign exchange trader at Tempus Consulting in Washington.

“As we start to to see a recovery, we will see the dollar soften up against most major currencies as its role as a risk aversion instrument wanes,” he added.

In morning trading in New York, the euro was little changed at $1.2965 EUR=, after trading as low as $1.2937 before the housing report. Against the yen, the dollar was 0.7 percent higher at 98.88 yen JPY=.

U.S housing starts rose 22.2 percent in February from the prior month, the Commerce Department said. For details, see [ID:nCAT002557]

German analyst and investor sentiment unexpectedly rose in March to its highest level in about a year and a half, with the ZEW economic expectations index rising to -3.5 from -5.8 in February, well above forecasts for a fall to -7.4 [nDEG003530].

Additional reporting by Nick Olivari in New York; Editing by Kenneth Barry

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