(Updates prices, adds quotes, changes byline)
* Dollar falls as housing, U.S. consumer confidence slide
* All eyes on Fed for clues about future rate moves
* Chances of August rate hike trimmed
By Gertrude Chavez-Dreyfuss
NEW YORK, June 24 (Reuters) - The dollar retreated on
Tuesday as a plunge in U.S. consumer confidence and declining
home prices raised doubts about the Federal Reserve's ability
to hike interest rates to stem inflation.
The dollar struggled as the Fed began a two-day monetary
policy meeting on Tuesday, with analysts expecting the U.S.
central bank to hold interest rates steady at 2 percent. But
traders will pore over the Fed's accompanying statement for
clues about possible hikes later in the year.
Analysts said Tuesday's data complicated matters for the
Fed as it tries to prevent the economy from slipping into
recession while grappling with rapidly rising food and energy
prices.
"The real domestic data in the U.S. is really bad and this
has pushed the dollar lower ... but still the Fed is stuck
because inflation expectations have risen," said Benedikt
Germanier, chief currency strategist in the U.S. at UBS AG in
Stamford, Connecticut.
"The real economy would demand that the Fed cuts interest
rates right now, but it's not that easy especially with rising
inflation pressures, which were caused in part by higher energy
prices and a weak dollar," he added.
The euro earlier hit a session high of $1.5621 <EUR=> after
data showed high prices sapped Americans' confidence in June
and pushed expectations of future prosperity to an all-time
low. Meanwhile, the headline consumer confidence number sank to
a 16-year low.
By late afternoon trading, the euro was still up 0.3
percent at $1.5569. The dollar fell slightly to 107.75 yen
<JPY=> from sessions lows at 107.37.
The dollar fell 0.4 percent to 1.0410 Swiss francs <CHF=>,
with the franc benefiting from market talk that Swiss bank UBS
<UBSN.VX> was a takeover target for HSBC <HSBA.L>.
Earlier on Tuesday, the S&P/Case-Shiller house price index
showed prices in 20 major metropolitan areas declined 15.3
percent in the year to April. Germanier said UBS expects
another 10 percent decline.
At the same time, profits at U.S. S&P 500-listed companies
were expected to fall by an average of 10.2 percent in the
second quarter, according to Thomson Reuters data, compared
with an earlier estimate of a 9.6 percent drop.
"Ongoing downward pressure on housing prices and equity
markets is operating to pound household net worth lower in the
second quarter of 2008," said Brian Bethune, chief U.S.
financial economist at Global Insight in Lexington,
Massachusetts.
He also cites "mounting downside risks to consumer spending
in the second half of 2008 despite the recent report of solid
non-auto retail sales and the anticipated boost from the tax
rebates."
Analysts also said the U.S. economy's continued weakness
should ease markets' expectations for rate increases this
year.
U.S. short-term interest rate futures trimmed the chances
of a rate hike in August to 70 percent from 74 percent after
the confidence data, and analysts said that could slide
further if the economy continues to show weakness.
If the Fed uses more neutral language on the balance of
risks between inflation and growth in its post-meeting policy
statement on Wednesday, dollar losses will accelerate,
according to Boris Schlossberg, senior currency strategist at
DailyFX.com in New York.
UBS' Germanier, on the other hand, believes the Fed will
"cut back on its hawkish rhetoric" which should weigh on the
dollar's outlook. He still sees the euro hitting $1.60 against
the dollar in one month.
(Additional reporting by Steven C. Johnson; editing by Gary
Crosse);
