The dollar weakened broadly on Friday as lingering worries about the recent global credit and liquidity squeeze outweighed surprisingly strong U.S. economic data.

The dollar briefly rose after reports showed U.S. new home sales rebounded in July and orders for durable goods unexpectedly jumped last month. However, news about exposure by Asian and European banks to the U.S. mortgage sector revived concerns about creditworthiness in global markets.

I don't think the dollar is being moved by short-term economic information and based on timing issues it looks like August will be more relevant in terms of new home sales and durable goods, said David Greenwald, a partner at short-term currency hedge fund Scalene Capital in Newport Beach, California.

The whole thing is still about credit worries although risk aversion is not as high as it used to be judging by action in the currency markets. The dollar is acting like a yen carry trade and it's selling off as risk aversion abates, he added.

Midday in New York, the euro was up 0.5 percent on the day at $1.3637. The euro was also up slightly versus the yen at 158.12 yen, recovering this week from 2007 lows.

The euro initially trimmed gains against the dollar after central bank sources told Reuters the European Central Bank is not committed to raising interest rates in September.

The sources said the bank's reference on Wednesday to its most recent policy statement, which was interpreted to mean the ECB remained on a tightening bias, was intended to keep options open.

The Reuters story may slightly have pared back expectations for a hike in September, but I still believe the ECB will hike in September, said David Powell, senior currency strategist at IDEAglobal in New York.

On Wednesday, the euro had rallied as markets revived expectations of a rate increase by the ECB after the bank suggested that there has been no change in its monetary policy stance since its last meeting.

Powell said the ECB statement on Wednesday seemed to have much more credibility than a statement from unnamed officials, which is probably why the euro has traded back up.

Against the yen, the dollar fell 0.3 percent to 115.94 yen. This currency pair has been the most sensitive to U.S. economic data on Friday.

Earlier, the dollar got a boost after a U.S. government report showed July orders for durable goods rose to their highest since September.

We are still not out of the woods but markets appear more able to digest new developments in the credit markets. No one is looking for any significant turnaround in the housing market so this will be viewed as an aberration, said Win Thin, senior currency strategist at Brown Brothers Harriman in New York.

Analysts said few investors were willing to take on fresh positions a week after liquidity in credit markets shrunk due to turmoil in the U.S. subprime mortgage market, triggering a frantic sell-off in global markets.

Higher-yielding currencies have since recovered somewhat, but investors remain wary that subprime-related problems may continue, keeping demand low for riskier trades such as those in stocks, credit and assets in high yielders.

The Australian dollar was up 0.2 percent against the yen at 95.45, while the New Zealand dollar rose 0.7 percent to 83.14 yen.

(Additional reporting by Nick Olivari)

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