Dollar languishes near record low against euro

TOKYO (AFP) - The dollar stayed near record lows against the euro in Asian trade Thursday as the market digested a warning by US Federal Reserve chairman Ben Bernanke that housing problems could worsen, dealers said.

They said European currencies were the strongest performers while the dollar and the yen remained under pressure as the market chased prospects of rising interest rates.

The dollar was steady at 121.91 yen in late morning trade in Tokyo after 121.94 in New York late Wednesday.

The euro eased to 1.3796 dollars from 1.3803, easing back from Wednesday's record high of 1.3833. The single currency slipped to 168.19 yen from 168.35.

"Trading ... is influenced by remarks Bernanke made concerning the housing situation," said a forex trader at Sumitomo Trust Bank.

In his testimony to US Congress, Bernanke warned that the downturn in the US housing market, a key concern of investors at the moment, could deepen -- but he also reiterated that inflation was the central bank's main worry.

The Fed also downgraded its growth forecast for the US economy this year to 2.25-2.5 percent, below a February forecast of 2.5-3.0 percent.

Troubles in the sub-prime segment of the US housing market have ignited fears of broader economic troubles. Sub-prime loans provide mortgages to people with poor credit histories, often allowing them to buy homes beyond their means.

The latest economic data had a muted impact on the dollar.

US consumer prices increased a stronger than expected 0.2 percent in June, largely on rising food prices, while the closely watched core inflation rate rose at the same pace.

A separate government survey showed US new home construction rose 2.3 percent in June but new building in the prior month was revised lower amid the nagging housing woes.

GFT senior analyst Ian Copsey said these data had kept the dollar firmly in a tight consolidation range while traders wondered what was needed to get it to break out of that range.

"The economic releases ... appear unlikely to generate this break and therefore (a break) does appear to need a gentle prod with a large stick," he said.

With the focus on prospects of higher interest rates in Europe, players will listen closely to a speech by European Central Bank chief Jean-Claude Trichet on Friday at a debate in Finland on stimulating European growth, dealers said.

Key British data including retail sales later Thursday will also be closely watched after signs of simmering inflation raised expectations that the Bank of England will hike rates again to 6.0 percent sometime soon.

The pound remained near a 26-year high against the US currency in Asian trading, at 2.0520 dollars, down from 2.0529 in New York.