* U.S. new-home sales rise sharply in June
* Euro at 7-week high against dollar
* Canadian dollar at 10-month high vs USD (Adds quotes, updates prices, adds detail)
By Wanfeng Zhou
NEW YORK (Reuters) - The dollar fell to its lowest level in more than seven weeks against a basket of currencies Monday as optimism about the global economy dulled the greenback's safe-haven appeal.
A government report showing a jump in U.S. new-home sales last month encouraged investors to take on risk and pushed the yen to multi-week lows versus the dollar and euro. Both the U.S. and Japanese currencies tend to fall when risk appetite improves.
The dollar has come under pressure in recent sessions as upbeat economic data and largely positive results on the U.S. corporate earnings front fueled expectations that the global economy was on the mend.
"Though the housing market remains weak compared to the peaks, the improved data will continue to feed into market optimism on green shoots," said Win Thin, senior currency strategist at Brown Brothers Harriman in New York.
"We had very strong gains last week in equity markets on general optimism," he added. "At this stage, the dollar remains vulnerable to good economic news and so the soft dollar tone is likely to continue."
The ICE Futures U.S. dollar index, a measure of the dollar's performance against six major currencies, fell to its lowest level since early June, at 78.396.
The euro was also buoyed by data showing German consumer sentiment at its highest level in over a year . The single currency last traded up 0.1 percent at $1.4217, after hitting $1.4299, a more than seven-week high and not far off its 2009 peak of $1.4337 hit in early June, according to Reuters data.
Against the yen, the euro also hit its highest level in more than three weeks at 136.09 yen, and last traded up 0.7 percent at 135.49 yen.
The dollar was up 0.5 percent at 95.28 yen , after hitting a session peak of 95.38 yen, the highest level in almost three weeks.
INVESTOR WARY REMAINS
Sales of new single-family homes in the United States rose 11 percent in June from the prior month, while the number of new homes for sale fell to the lowest level since February 1998. Analysts said the data is further evidence that the housing sector, which led the economy into the current recession, is starting to rebound.
"It's more good news," said Jacob Oubina, currency strategist at Forex.com in Bedminster, New Jersey. "So while the data continues to come in better than expected, you're going to see this risk rally continue."
Analysts, however, said the recent surge of optimism may begin to fizzle out as caution sets in ahead of U.S. gross domestic product data on Friday.
"The rally has become a little bit overstretched, not just in equities, but in risk assets in general," said Omer Esiner, senior market analyst at Travelex Global Business Payments in Washington.
The heavy short dollar positions in the market also suggested that "we could be due for a little bit of a correction given the fact the market is very heavily skewed against the dollar," he said.
Data from the Commodity Futures Trading Commission on Friday showed currency speculators nearly doubled their bets against the dollar in the week ended July 21, with the value of dollar net short positions the highest in a year.
The market was also keeping an eye on talks between top U.S. and Chinese officials in Washington on Monday and Tuesday for any comments regarding the dollar.
Meanwhile, the U.S. Treasury will sell a record $115 billion this week and the bond and currency markets are keen to see how demand holds up given rising stock markets and a potentially improving economic backdrop.
In other trading, the Canadian dollar jumped as high as C$1.0779 per U.S. dollar, its strongest since October 2008, while the Australian dollar climbed around 1 percent to a high of $0.8259, the highest level since early June. (Additional reporting by Steven C. Johnson; Editing by Leslie Adler)
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