FOREX-Dollar down vs euro, but on track for monthly gain

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* Dollar headed to second straight monthly gain vs euro

* U.S. personal income rose 0.2 percent in April

* German retail sales fell unexpectedly

By Vivianne Rodrigues

NEW YORK, May 30 (Reuters) - The dollar fell against the euro on Friday as some investors sold the U.S. currency after a string of recent gains had pushed it to its first back-to-back monthly gains since January 2007.

Demand for the greenback increased recently as oil prices eased from record highs and U.S. government data showed tame inflation.

Euro zone inflation, however, bounded to a historic peak of 3.6 percent in May, data showed on Friday, while German retail sales in April fell for the second month in a row.

"The dollar had two good months of gains versus the euro," said Joe Manimbo, a currency trader at Ruesch International in Washington. "The greenback is selling off a bit today, but it's Friday and some investors may want to cash in some gains after the good run in the currency ahead of the weekend."

In midday trading in New York, the euro was 0.2 percent higher at $1.5548 EUR=, after earlier trading as low as $1.5463. The euro zone common currency was headed for a second consecutive month of declines against the greenback, according to Reuters data.

A government report on Friday showed U.S. personal spending rose in April in line with forecasts and a key measure of inflation moderated. For details, see [ID:nN29395887]

And the dollar also garnered broad support this week from a further retreat in oil prices from last week's record of $135.09 per barrel.

"The personal income and spending report fits in nicely with recent data reflecting a bottom has been put in for the dollar," said Michael Woolfolk, senior currency strategist at Bank of New York Mellon. "The focus right now is also on oil prices."

Other data on Friday showed business activity in the U.S. Midwest contracted in May for the fourth consecutive month, but the rate of downturn moderated. [ID:nN30365493]

"It is a better-than-expected report," said Ron Simpson, director of foreign exchange research at Action Economics in Tampa, Florida. "Overall, this is good news for the dollar. We have had decent data. Not burning down the barns, but definite signs of a stabilizing economy."

EURO ZONE INFLATION EYED