The dollar edged lower against the euro and a basket of currencies in thin trade on Tuesday as worries about the depth of the U.S. recession mounted ahead of major U.S. economic data due later in the day. U.S. existing and new home sales figures are forecast to show a further deterioration in the housing market, while the Reuters/University of Michigan survey is expected to show consumer sentiment remains weak. Meanwhile, gross domestic product data is seen confirming previous estimates of a 0.5 percent contraction in the third quarter, which would mark the sharpest fall since the third quarter of 2001. Such weak data readings would add to the view that the U.S. economy is mired in a deep recession, which could push the dollar lower. Analysts said that razor-thin liquidity during the year-end holiday season could aggravate market movements, putting even more selling pressure on the U.S. currency. "The possibility of bad economic news is having an effect on the dollar," said Chris Gothard, currency analyst at Brown Brothers Harriman in London. "There's some concerns that the reports coming out this afternoon could show further declines in consumer confidence and the housing market." Adding to the dim view of the U.S. economy was news that big U.S. manufacturers were slashing costs, while ratings agencies dropped their ratings on debt held by U.S. automakers which have just received a lifeline from the U.S. government. By 1146 GMT, the euro traded 0.4 percent higher against the dollar at $1.3995 . The pair climbed to as high as $1.4720 on electronic trading platform EBS last week, its strongest level since late September. The dollar index -- a gauge of the U.S. currency's performance against six major currencies -- slipped a third of a percent to 80.962 .DXY.

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