* German data bolsters dollar demand
* Sterling softens after slight disappointment on GDP (Adds late trading, quotes and details)
By Michael Connor
NEW YORK, April 29 (Reuters) - The dollar ended five days of declines and rose against the euro on Tuesday as weaker-than-expected German inflation data drove speculation the European Central Bank may loosen monetary policy.
“German April inflation surprised to the downside,” said currency strategist Eric Viloria at Wells Fargo Securities. “If inflation comes in too low, that raises expectations the ECB will lower rates or take other steps that will hurt the currency.”
The dollar was also up 0.1 percent against the Japanese yen at 102.58 yen, while the U.S. dollar index was ahead 0.16 percent as U.S. central bankers began a two-day meeting expected to bring another reduction in Federal Reserve bond buying.
Preliminary data from Berlin showed that German annual inflation accelerated in April but at a slower-than-anticipated 1.1 percent. That possibly pushed up the euro zone rate but not as much as ECB policymakers might hope.
Euro zone inflation is running at 0.5 percent and concerns about deflation are rife. Data due out on Wednesday are expected to show inflation in the single currency bloc picking up to 0.8 percent in April but that would still be well below the ECB’s medium-term target of just below 2 percent.
The euro was off 0.3 percent against the dollar in late New York trade at $1.3809 after touching a session low of $1.3806.
The euro has struggled to push past a series of technical barriers since a first approach last month to the big psychological figure of $1.40 prompted warnings from the ECB about the currency’s strength.
But short-term euro zone interest rates continue to push higher, boosting returns on the currency, and a source on Monday said ECB President Mario Draghi had told German lawmakers outright money-printing by the bank was still a long way off.
Many investors and analysts appear to be discounting the effects of any ECB policy actions. Some analysts and fund managers think any quantitative easing would be modest and unlikely to reverse the euro’s exchange rate.
Britain’s sterling pulled back from a 4-1/2-year high against the dollar after the first estimate of Britain’s gross domestic product showed growth improving slightly but less than most economists had expected.
The data showed Britain’s economy, one of the brightest in the developed world, improved further in the first quarter, but there was widespread disappointment in a market that had been counting on a stronger figure.
Sterling last stood nearly flat for the day at $1.6825 in New York trading after touching a session low of $1.6794. (Editing by Gareth Jones, Tom Brown and Nick Zieminski)