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NEW YORK (Reuters) - The dollar gave up strong early gains and turned lower on Friday after the battered euro pivoted to price gains amid reports of short-covering in the common currency and a drop in U.S. bond yields.
The euro had its first weekly gain in four weeks and on Friday last traded at $1.2523, up 0.40 percent for the day.
The dollar index, which early on Friday touched a four-year high of 88.267 after a U.S. retail sales report bolstered views of a strengthening U.S. economy, was off 0.20 percent at 87.497.
But the basket of major currencies traded against the dollar has now had four straight weekly rises, a pattern that some strategists and traders say signals more increases are likely.
"We have a fairly well-developed upward trend in the U.S. dollar," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto. Persistent weakness in the Japanese yen and Britain's sterling benefit the dollar, Sutton said.
During the trading day, the euro struck a low of $1.2399 before climbing.
"The euro's ability to hold above that $1.24 level encouraged some investors to unwind short positions, essentially buying back the euro at these lower levels," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, D.C.
Other investors quit dollar investments as U.S. Treasuries yields declined after rising on hopes of piercing key levels, according to Sebastien Galy, currency strategist at Societe Generale.
"The market tried to go for the break very slowly, and we just sort of failed at that," Galy said. "From there we consolidated with some profit-taking on the dollar."
U.S. Treasury 10-year yields last stood at 2.322 percent after touching a high of 2.377 percent.
Japan's yen touched a fresh seven-year low of 116.82 yen to the dollar immediately after the release of the U.S. data and was last at 116.28, off 0.50 percent for the session.
The Swiss franc struck a 26-month high against the euro at 1.2011, edging closer to the Swiss National Bank's three-year-old cap of 1.20 francs per euro.
Additional reporting by Jemima Kelly in London; Editing by Peter Galloway, Dan Grebler and Lisa Von Ahn