FOREX-Dollar rally takes a breather, markets lack conviction
* Dollar's jobs-inspired rally runs out of steam
* Euro recovers from brief dip on weak German data
* U.S. yields slip as Wall St looks to earnings for guidance
By Ian Chua
SYDNEY, July 8 (Reuters) - The dollar started trade in Asia on the back foot on Tuesday having run out of puff near a two-week high, giving the euro a chance to get over an unexpected slump in German industrial output.
The dollar index traded at 80.218, off a 1-1/2 week peak at 80.359. Still, it managed to hold on to most of the gains made on Thursday in the wake of solid payrolls data.
The greenback's lacklustre performance came as U.S. Treasury yields slipped after Wall Street turned cautious ahead of the second-quarter earnings season starting this week.
That helped the euro pop back above $1.3600 from Monday's low of $1.3576, when an unexpectedly big fall in Germany's industrial output briefly unsettled the common currency.
The disappointing data added to mounting signs of a weaker second quarter in Europe's largest economy and also fanned expectations the European Central Bank (ECB) may have to loosen monetary policy further in coming months.
Both the euro and dollar were slightly softer against the yen at 138.60 and 101.84 respectively.
The moves on Monday were modest and highlighted a lack of conviction in a market still in the grips of a summer lull.
"With no new news flow and fatigued investors, who are now waiting for more definitive signs that something will happen on the central bank front, there was a lot of drift overnight," said Emma Lawson, senior currency strategist at National Australia Bank in Sydney.
"With many consensus trades over the year having been thwarted, it may take the evidence of change to be overwhelming before participants join and create a trend."
Strong performers such as sterling and the Canadian dollar reversed some of their recent gains. The pound eased to $1.7130 after failing for a second time to break above $1.7180, a high not seen since Oct. 2008.
The loonie fell to C$1.0684 per USD, pulling further away from a six-month peak of C$1.0620 set last week.
In contrast, investors picked up a bruised Australian dollar, helping drive it to $0.9363 from a two-week trough of $0.9327 plumbed last week.
Yet it remained well below a recent high of $0.9505 with markets yet to fully get over the central bank's latest attempt to jawbone the currency lower.
Asia has a smattering of second-tier data on offer on Tuesday ahead of inflation figures out of China on Wednesday and minutes of the Federal Reserve's latest meeting.
Fed officials including Jeffrey Lacker and Narayana Kocherlakota are scheduled to speak later on Tuesday, with Lacker addressing the "Economic Outlook, July 2014", and Kocherlakota "Monetary Policy and the Economy." (Editing by Richard Pullin)
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