* Most markets shut Wednesday for Christmas Day
* U.S. durable goods data surprises on upside in November
* Thin holiday trade mutes forex response to U.S. data
By Lisa Twaronite
TOKYO, Dec 25 (Reuters) - The dollar drifted higher on Wednesday in extremely thin trading, with most markets closed for the Christmas holiday, as investors digested upbeat U.S. economic data that validated the Federal Reserve’s decision to begin paring its stimulus.
The dollar gained about 0.1 percent to 104.29 yen, near a five-year high of 104.64 hit on the EBS trading platform on Friday. Market participants cited option-related positions at the 105 yen level, which is the next major resistance for the pair.
The euro was flat on the day against its Japanese counterpart at 142.55 yen, not far from a five-year high of 142.90 yen also set last week.
Against the dollar, the euro was steady at $1.3679, holding above last Friday’s two-week low of $1.3625.
U.S. data on Tuesday showed orders for long-lasting U.S. manufactured goods surged in November and a gauge of planned business spending on capital goods recorded its largest increase in nearly a year, pointing to sustained strength in the economy.
While another report on Tuesday showed new home sales slipped in November, sales in October were revised to show the highest pace in more than five years. In addition, house prices rebounded, underscoring the economy’s improving fundamentals.
U.S. market reaction to the data was subdued, with many market participants already gone for the holiday.
“Market reaction in normal times would probably be triple what we have seen,” Steven Englander, global head of G10 FX strategy at CitiFX, said in a note to clients.
The reason, he explained, was that “liquidity and market interest are both close to zero. Thursday should not be much better.”
Englander cited a small chance that currency markets would catch up to the latest U.S. economic developments on Friday or Monday, but with most investors already focused on 2014, it may be early January before active trading resumes.
The Fed announced a week ago that it will pare its monthly purchases of Treasuries and mortgage-backed securities in January by $10 billion, to $75 billion.
It offset the stimulus reduction by declaring it will maintain short-term rates near zero “well past the time” that the jobless rate falls below 6.5 percent, especially if inflation expectations remain below its target.
Investors in Asia continued to watch China’s interbank market. Rates spiked to their highest level since June earlier this week, partly due to seasonal factors that increase banks’ demand for cash near the end of each quarter.
On Tuesday, China’s central bank injected funds through normal channels for the first time in three weeks, but traders warned that conditions remained tense.