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TOKYO (AFP) - The dollar was mixed in Asian trade Friday, gaining on the euro after a surprise rise in new US home sales lifted optimism about the outlook for the world's largest economy, dealers said.

The dollar dipped to 120.92 yen in Tokyo morning trade from 121.37 yen in New York late Thursday, easing back from three-month highs seen earlier this week.

The euro slipped to 1.3419 dollars from 1.3428 and to 162.25 yen from 163.00.

"Traders took profits after the bullish (housing) figures that confirmed the US economy remains robust," said Kazuhiko Shibata, branch manager at Dresdner Bank in Tokyo.

"The dollar is making a comeback after being on the backfoot against the euro," which has been the star performer recently because of firmer eurozone growth, said Shibata.

Dealers said sales of new homes in the US which rose by a much better than expected 16.2 percent in April had reduced the chances that the Federal Reserve may cut interest rates any time soon.

"While driven by discounting to clear large inventories of unsold homes, it was a sign that the US housing market may be stabilising, prompting investors to discount the likelihood of a US recession,"
National Australia Bank strategist John Kyriakopoulos wrote in a note to clients.

"A string of other better-than-expected US economic reports over recent weeks suggests US economic growth improved in the second quarter," he added.

Market participants largely overlooked news that Japan's core consumer price index fell by 0.1 percent in April from a year earlier, down for a third straight month but in line with market expectations.

Dealers expect the Bank of Japan to raise its benchmark interest rate again from 0.5 percent sometime in the second half of 2007 despite deflation concerns.