* Equities rebound, but euro sentiment still negative
* Concerns about tight dollar funding weigh
* U.S. durable goods orders, new home sales rise in April (Adds quote, U.S. data, updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, May 26 (Reuters) - The euro fell for a third straight session against the dollar on Wednesday, still pressured by nagging fears that the European debt crisis could hurt global growth prospects.
Concerns about tighter dollar funding conditions, with three-month dollar interbank rates hitting a fresh 10-month high on Wednesday, and a surprisingly lackluster German debt auction also weighed on the euro, analysts said.
A surge in U.S. durable good orders and new home sales for April boosted U.S. stocks and overall risk sentiment, but did not helped the euro. In recent weeks, the euro has become a proxy for risk appetite, given Europe's debt crisis, rising or falling in tandem with global stocks.
"We're having a cautious bounce in market sentiment after upbeat U.S. data, but it's not helping the euro because people are still concerned about debt problems in the euro zone," said Vassili Serebriakov, senior currency strategist, at Wells Fargo in New York.
"Markets are being selective and are instead buying those with healthier fundamentals such as the Aussie and Canadian dollar," he said.
In mid-morning New York trading, the euro fell 0.9 percent against the dollar to $1.2256, after session lows at $1.2226. On Tuesday it had hit a low of $1.2177 on EBS when investors pulled back sharply from riskier assets. The euro last week hit its lowest level since April 2006, falling to $1.2143.
Data showing U.S. durable goods orders surged in April and new home sales rose to a two-year high last month further boosted the dollar against the euro.
David Resler, chief economist, Nomura Securities International in New York, noted that the rise in home sales came as the U.S. stock market hit its highest level in a couple of years.
"It doesn't really tell us much at all except the economy was clearly gaining some traction when the stock market stumbled at the beginning of this month," he said
Earlier, the euro suffered after Federal Reserve Chairman Ben Bernanke said the U.S central bank's dollar funding facility was unlikely to last forever. That partly dimmed risk appetite, although the impact was short-lived.
Speaking in Tokyo, Bernanke said dollar swap lines, which were reinstated as the Greek debt crisis escalated, played an important role in stabilizing markets but that the Fed did not want to provide a permanent service.
Later on Wednesday, U.S. Treasury Secretary Timothy Geithner will meet his new UK counterpart, George Osborne, and Bank of England Governor Mervyn King in London before traveling to Frankfurt for dinner with the European Central Bank president, Jean-Claude Trichet.
Geithner is expected to discuss the debt crisis in Europe, which has led to global market turmoil in the past few weeks.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up slightly at 86.877.
Against the yen, the euro was down nearly 0.7 percent at 110.87 yen. On Tuesday, it tumbled to 108.83 on trading platform EBS, its lowest since November 2001.
The dollar was up 0.2 percent against the yen at 90.46. (Additional reporting by Rodrigo Campos; Editing by Leslie Adler)