* Bundesbank position leads to euro sell-off
* Draghi inspired euro gains appear to fizzle
* Traders awaiting U.S. Q2 GDP data
LONDON, July 27 (Reuters) - The euro fell on Friday, retreating from a two-week high against the dollar, as investors sold into its recent rally on fresh doubts about whether the European Central Bank would take bold measures to tackle the sovereign debt crisis.
A pledge by ECB President Mario Draghi on Thursday to do whatever it takes within the bank's mandate to preserve the euro, had propelled the common currency to a two-week high of $1.2330.
Analysts said Draghi's comments sent a strong signal that the ECB could take steps to rein in soaring Spanish and Italian borrowing costs. It has previously bought government bonds in the secondary market to help push yields down.
But the German Bundesbank said on Friday it remained critical of the ECB's bond-buying programme, triggering a selloff in the euro and European shares and a rise in euro zone peripheral bond yields.
The euro fell to a session low of $1.2241 on trading platform EBS, down 0.2 percent on the day, but holding well above this week's two-year low of $1.2042. Traders cited offers to sell the euro at $1.2320/30 with stop-loss orders above $1.2350.
"It suggests we saw a bit of an overreaction to Draghi's comments yesterday," said Adam Cole, global head of FX strategy at RBC.
"The market overinterpreted what he said and he didn't need to be taken that literally, so we think it's very unlikely that the ECB is ready to reintroduce regular bond buying operations or induce any other policy change beyond cutting interest rates for the time being."
The ECB earlier this month cut interest rates to support economic growth, but pressure is building on it to do more given peripheral euro zone governments are struggling to implement tough austerity measures. It holds a policy meeting next week.
The ECB has bought 211.5 billion euros worth of government bonds since the programme began in May 2010.
Analysts said that purchases between August and December last year had initially lowered borrowing costs but that long-term yields began climbing again in November, putting pressure on the euro.
"I can't imagine Draghi would have made his comments without some sort of nod that temporary measures could be made, but this does not add up to solving the euro zone's problems, so I think the peak has already been seen," said Neil Mellor, currency strategist at Bank of New York Mellon.
As such, investors will be watching the ECB meeting next Thursday to see if the central bank follows up Draghi's words with any plan of action.
The market will watch U.S. economic output data to be published at 1230 GMT. The median of forecasts from analysts polled by Reuters is for growth of 1.5 percent in the second quarter, down from the first-quarter's 1.9 percent expansion.
Strategists said although a weaker-than-expected GDP figure may raise expectations that the Federal Reserve could adopt further monetary easing steps at its meeting next week, potentially sending the euro back above $1.23, a stronger figure wouldn't necessarily strengthen the dollar.
"It's highly unlikely even a strong print on GDP -- which would be out of the blue -- would really change the picture," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York.
"We know already the quarter was weak, so what's more important now is the forward-looking perspective. Even if there were signs of ECB action, it would not necessarily change the Fed's course going forward. The Fed stands very little chance of achieving its goals on employment without further stimulus."
The Fed might eventually opt for a third round of quantitative easing in the form of large-scale bond purchases, known as QE3, or cut the interest rate it pays banks on the excess reserves they leave with the central bank.
The dollar was slightly lower against the yen, trading at 78.10 yen. The euro eased against the Japanese yen , falling to 95.75 yen, but still above a 12-year low of 94.12 yen touched on Tuesday.