* U.S. July existing home sales pace fastest in 2 years
* Bernanke says prospects for return to global growth good
* Euro supported by euro zone services sector data (Recasts lead, adds comments, details. Updates prices)
By Vivianne Rodrigues
NEW YORK, Aug 21 (Reuters) - The U.S. dollar rose versus the yen on Friday after U.S. housing sales jumped for a fourth straight month and Federal Reserve Chairman Ben Bernanke said prospects were good for a return to growth in the near-term.
U.S. stocks extended gains, while demand for safe-haven assets such as U.S. Treasuries and the Japanese yen fell as analysts said both headlines boosted hopes for the global economic recovery.
"Both Bernanke and home sales were 'all aboard' the recovery story!" said Alan Ruskin, global head of currency strategy at RBS Global Banking & Markets in Stamford, Connecticut.
In late morning trading in New York, the dollar was up 0.5 percent at 94.63 yen, near session highs, after trading as low as 93.40 yen earlier, according to Reuters data.
The euro initially extended its advance versus the dollar after the headlines, but it gave up most of those gains to trade last up 0.4 percent at $1.4302.
"After contracting sharply over the past year, economic activity appears to be leveling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good," Bernanke said at an annual Fed conference.
"Although we have avoided the worst, difficult challenges still lie ahead," he said, cautioning that the "recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels."
Meanwhile, an industry survey showed sales of previously owned U.S. homes in July notched their fastest pace in nearly two years, the strongest sign yet that housing is pulling out of a three-year slump.
"Both (Bernanke and housing data) were more bullish than what the market was looking for. The market is just taking those headlines as extreme positives for the outlook both in the U.S. and globally," said Jacob Oubina, currency strategist, Forex.com Bedminster, New Jersey.
The commodity-linked Australian and New Zealand dollars also rose as the price of oil hit its highest level of 2009, helping to revive investor risk appetite. Trading remained quiet, though, with many investors out for summer holidays.
EURO ZONE DATA
Earlier in the session, a jump in euro zone service sector and manufacturing activity helped lift the euro to a one-month high against sterling and sent European stocks to a 9-1/2-month high.
Some analysts, however, warned it is too early to conclude that the euro zone economy is out of the woods, which could cap the euro's gains.
"Some of the positive data recently has not been evoking big reactions, and there are still a lot of risks around the corner," said Neil Mellor, currency strategist at Bank of New York Mellon.
The Australian dollar rose 0.5 percent to $0.8348 and the New Zealand dollar was up 0.8 percent to $0.6826, helped by a 1.5 percent spike in U.S. crude oil prices.
Some traders said positive sentiment was dulled a bit by reports that China's banking regulator, concerned about a rise in bad loans, may tighten banks' capital rules. (Additional reporting by Wanfeng Zhou and Nick Olivari in New York; Editing by Leslie Adler)