The U.S. dollar edged lower Tuesday against major counterparts amid reports that more banks may need to raise capital.
The dollar recovered some losses after the Institute of Supply management's survey of non-manufacturing businesses showed that sector of the economy contracted at a slower pace last month.
The dollar index , a measure of the greenback against a trade-weighted basket of currencies, traded at 83.915, down from around 84.0 in late North American activity Monday.
The dollar bought 98.97 Japanese yen, little changed from Monday.
The ISM's services index rose more than analysts expected to 43.7 in April, from 40.8 the previous month. Readings below 50 indicate the industry is contracting.
Also, Federal Reserve Chairman Ben Bernanke said the economy is bottoming out, in testimony to Congress.
U.S. stock markets struggled. The dollar and the Japanese yen have tended to lose ground during periods of increased risk appetite, while rallying when investors flee riskier assets amid financial turmoil and rising economic fears.
The Wall Street Journal on Monday said U.S. officials are expected to direct 10 of the 19 banks undergoing stress tests to boost their capital. See more on banks.
The release of the stress test results, expected Thursday, is "an event risk and may be constraining US dollar gains," said Marc Chandler global head of currency strategy at Brown Brothers Harriman.
The European single currency lost ground versus the dollar Tuesday, retreating slightly off of a monthly high ahead of a meeting later this week of European Central Bank policy makers.
The euro traded above the $1.34 level versus the dollar late Monday, but retreated ahead of the release of data on euro-zone March producer prices. The single currency traded at $1.3366 in recent trade, down 0.2% on the day.
The statistics agency Eurostat said annual producer-price inflation fell 3.1% in March, the steepest drop in 22 years. That puts additional focus on Thursday's meeting of the European Central Bank, where policy makers are widely expected to cut the key lending rate by a quarter point to 1%.
The Australian dollar jumped to a seven-month high versus the U.S. unit and rallied sharply versus other currencies after the Reserve Bank of Australia said it would leave its policy rate unchanged at 3%, citing further signs of stabilization in the global economy. See full story.
The Aussie dollar gained 0.8% versus the U.S. unit to buy 74.49 U.S. cents in recent action.
The decision was widely expected, but analysts said strong gains by commodities and an upbeat assessment of Australia's domestic economic outlook helped fuel the rally.
