(Reuters) - The dollar fell against a basket of currencies on Tuesday, hurt by lower U.S. yields and giving a fillip to the euro that has so far proven resilient to talk of looser monetary policy by the European Central Bank. Expectations that month-end rebalancing flows by asset managers could also see the dollar weaken against currencies including the euro and the British pound. The dollar index .DXY was down 0.3 percent at 80.696, reversing Monday's gains and pulling away from last week's high of 81.29 as U.S. 10-year Treasury yields slipped after data on Monday showing contracts to buy previously owned U.S. homes hit a 10-month low in October. The euro was up 0.35 percent at $1.3567, triggering stop loss buy orders above $1.3560, with near-term resistance seen at its November 20 high of $1.3584. "The dollar's own issues about whether Fed tapering will take place or not make the euro the next best alternative," said Daragh Maher, currency strategist, at HSBC. "But the euro is looking rather toppish here." Part of the reason for the euro holding up is some speculation that euro zone inflation, due later in the week, could show a slight rise in prices. That would push back expectations that the ECB will take further action to fight disinflationary pressures. Forecasts are for November euro zone flash inflation at 0.8 percent, year-on-year, up from 0.7 percent in October. Last month, after a shock drop in euro zone inflation, the ECB cut its refinancing rate to a record low, pushing the euro to a near two-month trough. "Inflation readings are starting to have a much greater impact on currencies than before," added HSBC's Maher. The euro has since bounced back and was trading near a four-year high against the yen at 137.70 yen. But the dollar was down 0.2 percent at 101.50 yen, having pulled away from a six-month high of 101.915 yen hit on Monday after the housing data. The data raised questions about the strength of the U.S. economy, prompting profit-taking in the dollar, which had gained 1.9 percent versus the yen in three sessions. However, the yen remains under pressure on expectations the Bank of Japan's commitment to an ultra-easy policy will keep it the best funding currency for carry trades, especially against European currencies. Sterling hit a five-year high of 165.28 yen on Monday and last stood at 164.30 while the Swiss franc hit a 23-year high of 112.10 yen. "The yen and the franc are both often considered as safe-haven currencies. The fact that the yen is at a two-decade low against the Swiss franc symbolizes how weak the yen is at the moment," said Minori Uchida, chief currency analyst at Bank of Tokyo-Mitsubishi UFJ.

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