FOREX-Euro weakens for 3rd straight session vs U.S. dollar

* Equities rebound, but euro sentiment still negative

* Concerns about tight dollar funding weigh

* U.S. durable goods orders, new home sales rise in April

* Geithner calls for action on euro debt crisis (Updates euro/dollar price to reflect new intraday low, adds Geithner appeal)

By Gertrude Chavez-Dreyfuss

NEW YORK, May 26 (Reuters) - The euro fell for a third straight session against the dollar on Wednesday, pressured by nagging fears about the European debt crisis.

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. For German auction see [ID:nLDE64P0VB].

A surge in U.S. durable goods orders and new home sales for April boosted U.S. stocks and overall risk sentiment, but did not help 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.

But that changed on Wednesday and investors dumped euros even as global stocks rallied.

"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.

The euro's decline this week started with the Spanish central bank's takeover of a savings bank over the weekend, which highlighted systemic risks in Spain's banking system.

Earlier in the session, the euro took another dive lower on speculation that a large Spanish bank has been struggling to roll over $1 billion in short-term funding in the U.S. commercial paper market.

In midday New York trading, the euro fell 1.1 percent against the dollar to $1.2225 after hitting session lows at $1.2191, according to electronic trading platform EBS. On Tuesday it had hit a low of $1.2177 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. [ID:N26186476].

David Resler, chief economist at Nomura Securities International in New York, noted that the rise in home sales in April 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.

U.S. Treasury Secretary Timothy Geithner began a two-day, multi-city European visit on Wednesday to confer with officials about ways to shore up the world economic recovery. In London Geithner said Europe has the right ideas to solve its fiscal crisis but needs to put them into practice to calm markets.

Geithner pressed the case for greater international cooperation to cope with the crisis spreading through southern Europe, which is sapping investor confidence. [ID:nLDE64P123].

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.3 percent at 87.067 <.DXY>.

Against the yen, the euro was down 1.2 percent at 110.36 yen , after session lows at 109.88. On Tuesday, it tumbled to 108.83, its lowest since November 2001.

The dollar was little changed against the yen at 90.26. (Additional reporting by Rodrigo Campos; Editing by Kenneth Barry)