Dollar starts 2008 on a weak footing

LONDON, Jan 2 (Reuters) - The dollar fell half a percent versus the euro on the first trading day of the new year with investors inclined to bet that coming U.S. economic news would be soft enough to confirm the need for more interest rate cuts.

Although U.S. existing home sales data on Monday was a bit better than expected, it did little to alter the downbeat view on the world's biggest economy cemented by the previous week's soft reports on new home sales and durable goods orders.

On the last trading day of 2007, U.S. short-term rate futures were pricing in as much as 96 percent probability of a Federal Reserve rate cut to 4.00 percent on Jan. 30. That would bring the U.S. benchmark, currently 4.25 percent, into line with euro zone rates, completely erasing the dollar's yield advantage over the euro.

Market activity was expected to slowly pick up as investors return from Christmas and new year holidays although Japan and China remain on holiday until Friday.

For complete article, http://www.reuters.com/article/usDollarRpt/idUSL024375820080102