FOREX-Dollar dips as caution prevails before German data

By Chikako Mogi

TOKYO, May 20 (Reuters) - The dollar eased on Tuesday, failing to sustain an overnight recovery as worries persisted about the outlook for the U.S. economy and as caution prevailed ahead of German sentiment and prices data.

A lack of follow-through buying showed the dollar's recovery had been largely technical after a sell-off late last week on concerns about U.S. growth, traders said.

The dollar rebounded from Monday's lows after the private Conference Board's leading indicator index showed a rise of 0.1 percent in April to match the increase in March, which followed five straight months of declines.

The data was seen supporting views the U.S. economic slump may be near a bottom and the Federal Reserve's easing cycle was completed, with the possibility of a rate rise later in 2008.

"Price action is still confined to ranges, reflecting a lack of confidence among players about which currency to bet on," said a senior dealer at a Japanese trading firm.

"U.S. data shows signs the economy may be temporarily coming to a standstill, although downside risks remain in place, putting the dollar under selling pressure," he said.

The market was now focusing on Germany's ZEW sentiment index and producer prices index due later on Tuesday for clues about whether the euro could sustain gains above a recent range, traders said.

"The euro is choppy and traders are eyeing the key German data later today," said a dealer at a Japanese bank. "If figures are strong, the euro could break above the recent range while weaker figures could push it below."

The euro was up 0.1 percent at $1.5533 EUR=, after rising to around $1.5630 on Monday before the U.S. leading indicator report pushed it back below $1.5500.

Traders said depending on the German figures, the euro could break out of the recent range between $1.5300 and $1.5600.

The dollar fell 0.2 percent against the yen from late U.S. trading on Monday to 104.10 yen JPY=. The dollar's failure to hold above 105 yen suggested lingering concerns about the U.S. economy, with selling by Japanese exporters around 105 yen capping its upside.

The euro has struggled to keep gains above 162 yen, showing investors' risk appetite has not recovered fully, traders said. The euro was down 0.1 percent at 161.72 yen EURJPY=R.

A rise in oil and a rebound in gold prices further added to the dollar's weakness, as the currency typically moves in the opposite direction to those prices.

INFLATION CONCERNS

The Australian dollar hit a fresh 24-year high against the U.S. currency, after minutes of the Reserve Bank of Australia's meeting in May showed it actively considered raising interest rates as inflation was uncomfortably high. The RBA kept rates steady. [ID:nSYU004390]