* Dollar falls from more than 3-month highs vs basket
* U.S. new home sales hit seven-month low in November
* U.S. consumer sentiment rises but misses estimates (Updates prices, adds comment, details)
By Wanfeng Zhou
NEW YORK, Dec 23 (Reuters) - The dollar declined on Wednesday after an unexpected fall in U.S. new home sales to a seven-month low last month dented optimism about the economy.
The government's housing report also included a downward revision to the previous month's figure, just one day after an industry report showing a 7.4 percent increase in November existing home sales had increased hopes the hard-hit housing market was stabilizing.
"It's clearly a disappointing number," said Nick Bennenbroek, head of currency strategy at Wells Fargo in New York. "You're going to get bumps along the road every so often sharp as far as recovery is concerned. It might change sentiment regarding interest rates and the dollar a little bit."
Optimism about the U.S. economy had stoked expectations the Federal Reserve may raise its borrowing costs sooner rather than later, pushing the dollar to its highest level in more than three months against a basket of six major currencies the previous day.
In mid-morning trading, the euro was up 0.6 percent at $1.4334, rebounding from a 3-1/2 month low of $1.4216 on Tuesday after a third rating agency had downgraded Greece's credit rating.
Adding to pressure on the dollar was a survey showing that although U.S. consumer sentiment rose in December, it fell short of analyst expectations and trailed the preliminary December figure.
The ICE Futures U.S. dollar index, which values the greenback against a basket of six currencies, was down 0.5 percent on the day at 77.833, down from a 3-1/2-month peak of 78.449 hit on Tuesday.
Against the yen, the dollar last dropped 0.5 percent to 91.34 yen, after earlier climbing to 91.87 yen. its highest level since late October.
Trading was extremely thin, which may have exaggerated currency moves; Tokyo markets were closed for a national holiday and many market players elsewhere have already wound down for the Christmas holidays and year-end. (Additional reporting by Steven C. Johnson; Editing by Leslie Adler)