FOREX-Dollar gains on strong housing data, ECB rate view

(Recasts, updates prices, changes byline)

* Housing data helps boost the dollar

* Euro falls as ECB's Trichet highlights risk to growth

* Dollar index hits highest level in 5-1/2 months

By Vivianne Rodrigues

NEW YORK, Aug 7 (Reuters) - The U.S. dollar rose broadly and hit a 5-1/2-month high against a basket of currencies on Thursday, bolstered by a surprise rise in June home sales and diminished expectations for euro zone interest rate increases.

The gain in pending home sales offset a bleak U.S. jobless claims report, supporting a growing view that the current housing slowdown may be nearing a bottom. The data backed expectations of U.S. rate hikes this year, which has fueled a rebound in the dollar over the past two weeks.

In contrast, European Central Bank President Jean-Claude Trichet, in remarks after the bank held rates at 4.25 percent, said he expects economic growth in the euro zone to weaken substantially this year, even as he sees inflation remaining above the ECB's target. For more details, see [ID:nL7650401]

Following his comments, investors unwound bets for ECB interest rate increases this year, limiting the euro's appeal to global investors.  Continued...