* Dollar index down as euro, yen edge higher * Commodities pause from selling, gold recoups previous day's loss * European shares dip; ZEW, euro zone industrial output data eyed By Marc Jones LONDON, May 14 (Reuters) - A pause in the dollar's recent run helped steady oil and gold prices on Tuesday, while large demand for Spanish bonds helped the euro shake off weaker-than-forecast German sentiment data. After a surprising rise in U.S. retail sales boosted optimism about the recovery in the world's top economy on Monday, Germany's ZEW monthly sentiment survey underscored the uncertainty that continues to weigh on Europe. The monthly poll of economic sentiment rose to 36.4 points from 36.3 in April, undershooting the consensus forecast in a Reuters poll of 30 economists of 38.3, with the institute blaming the miss on the euro zone's ongoing woes. "Despite mostly positive economic data for the German economy, the ZEW indicator remains at the level of the previous month," said ZEW President Clemens Fuest. "This may be due to the still poor economic situation in the euro zone, that is also reflected by the recent ECB interest rate cut." The euro had been hovering at $1.30 ahead of the data after some profit taking on a dollar at five-week high against a basket of major currencies. The ZEW numbers saw it drop to $1.2983 but it quickly recovered after Spain saw huge demand for 10-year bonds it plans to offer. Monday's better-than-forecast U.S. retail sales had prompted Goldman Sachs and JPMorgan to upgrade their view on second-quarter U.S. growth. More data will be released this week, including industrial production, housing starts and consumer sentiment. Economists are beginning to shake off fears of a damaging U.S. spring slowdown and the pick up has stirred market talk that the Federal Reserve could scale back its aggressive bond-buying programme aimed at supporting growth later this year. Euro zone industrial production data for March was slightly above forecast, indicating the bloc remains in a mild recession. First quarter GDP figures are due on Wednesday for the overall euro zone as well as Germany, France, Italy, the Netherlands, Austria, Portugal and Greece. DOLLAR RISE World stocks are at their highest level in almost five years following a four-year rally built on a constant drip feed of central bank support. Dan Morris, a macro strategist at JP Morgan, said the recent rise in the dollar was not just due to weakening of currencies like the yen but also proof investors were becoming increasingly confident about U.S. growth. "It is indicator that the U.S. is doing better so that should generally be a positive signal for equities." European stock markets started the day brightly but the momentum faded quickly and the pan-regional FTSEurofirst 300 extended losses to 0.4 percent after the ZEW data. London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX were down 0.1, 0.4 and 0.2 percent respectively, while MSCI's world share index was flat. The drop back in the dollar allowed gold to find a firmer footing after three days of falls and helped oil to steady at just below $103 a barrel. In the Europe's bond markets, the benchmark German Bund stayed well inside its tight recent range, while yields on Italian and Spanish bonds edged up again leaving them at their highest in two weeks despite the well-received Spain sale.