By William L. Watts, MarketWatch LONDON (MarketWatch) -- The dollar gave up early gains versus major rivals Tuesday, slipping slightly as the European single currency saw a respite from selling pressure as equity markets rebounded. The euro (CUR_EURUSD 1.2427, +0.0035, +0.2824%) changed hands at $1.2405, up slightly from $1.2384 in North American trading late Monday, a day on which it sank as low as $1.2233 -- its lowest level since April 2006. Against the yen, the euro (CUR_EURYEN 113.9800, -2.0200, -1.7414%) rose to ¥115.14, up 0.5%. Investors showed some renewed interest in equities in Asia and Europe, signaling a return to risk appetite, which generally tends to favor the euro while pressuring the dollar and the Japanese yen. But lackluster economic data and further selling by aggressive shorts kept a lid on the euro's rebound, said Boris Schlossberg, director of currency research at GFT. Still, there are signs that investor sentiment has stabilized as the yield premium demanded by investors to hold southern European government bonds over German bunds continues to narrow amid European Central Bank purchases. The spread between 10-year Greek and German bonds narrowed to less than five full percentage points, after blowing out to 10 percentage points earlier this month as the crisis deepened. Meanwhile, strategists at Brown Brothers Harriman said the risks for the euro remain "strongly tilted to the downside." With the market focused on sovereign debt issues, the euro showed little reaction to much steeper-than-expected drop in a gauge of German investor confidence. The ZEW economic expectations index declined to 45.8 in May from 53.0 in April, with the slide exceeding expectations for a fall to 47.0. Read about the ZEW index. Greece's Finance Ministry confirmed Tuesday it had received €14.5 billion ($18.4 billion) in bilateral loans from fellow euro-zone countries via the European Commission. The funds come on top of the €5.5 billion already received from the International Monetary Fund and will ensure that Greece meets a €19 billion refunding commitment on Wednesday. The news offered little surprise and had little impact on the market, strategists said. The dollar index (DXY 86.00, -0.21, -0.24%) , which tracks the U.S. unit against a trade-weighted basket of six major currencies, slipped to 86.153, down from 86.240 late Monday. The British pound (CUR_GBPUSD 1.4466, -0.0018, -0.1243%) slipped 0.1% versus the dollar to trade at $1.4452. The currency was undercut by a faster-than-expected acceleration of the annual inflation rate to 3.7% in April from 3.4% in March. Economists had expected a figure of 3.5%. Read about the U.K. inflation data. The rise required Bank of England Governor Mervyn King to pen an open letter to Chancellor of the Exchequer George Osborne explaining why the central bank had missed the 2% target by more than a full percentage point. King said the central bank was conscious of upside and downside risks to the inflation outlook, but expected spare capacity in the economy to exert downward pressure on prices over coming months. The dollar (CUR_USDYEN 92.7800, +0.1700, +0.1836%) erased an earlier loss versus the Japanese currency to trade at 92.78 yen, up from ¥92.52 late Monday. "Although our nation's economy is recovering, stock markets have declined and the yen has temporarily strengthened because of the impact of the situation in Europe," Japan's finance minister, Naoto Kan, said at a regular press conference, according to Dow Jones Newswires. Kan reportedly added that he believed stocks and the yen "will gradually stabilize." The Bank of Japan said Tuesday it garnered total bids of $210 million for its dollar-supply operation starting from May 20. All the bids were accepted, the central bank said.

Source