The dollar fell on Thursday, dropping to nearly three-month lows against the yen, after June U.S. new home sales came in below expectations, adding to widespread fears about credit market problems.

The dollar fell against the yen to around 119.13 yen from 119.35 yen, where it was shortly before the data. It then recovered to 119.40, down 0.8 percent from Wednesday.

The euro rose to a session high of $1.3744 from $1.3723, although the single currency has been weighed down a bit by weakness against the yen.

U.S. new home sales fell in June to a lower-than-expected level and prices slumped from May, according to a government reports that pointed to continuing weakness in the housing sector.

It's bad news all around for the dollar, said David Powell, senior currency strategist with IDEAGlobal in New York. That doesn't bode well for the category of GDP that's been a drag for so long, residential fixed construction.

The yen was already broadly higher because of widespread fears that problems in credit markets, which emanated from the subprime mortgage industry, are growing and threatening riskier investments.

(Additional reporting by Steven C. Johnson)

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