FOREX-Bearish US consumer confidence data batters dollar

(Recasts, updates prices)

* Dollar tumbles on bearish consumer sentiment data

* U.S. consumer confidence dives to 28-year low

* U.S. housing starts rise unexpectedly in April

By Lucia Mutikani

NEW YORK, May 16 (Reuters) - The dollar fell on Friday as a plunge in U.S. consumer confidence raised the specter of a contraction in second quarter growth and trimmed the chances the Federal Reserve will raise interest rates this year.

The unexpectedly sharp drop in consumer sentiment to a 28-year low in May eclipsed a report showing a rebound in building permits and construction starts for new U.S. homes, which briefly triggered some dollar buying.

"Consumer sentiment data are closely tied to consumer spending levels," said Andrew Busch, global FX strategist at BOM Capital Markets in Chicago.

"It really shows that the consumer is likely going to have low levels of spending which could translate into a quarter where we have negative GDP growth if this continues into June."