By Deborah Levine and William L. Watts , MarketWatch
NEW YORK (MarketWatch) -- The U.S. dollar gave up earlier gains against the euro on Wednesday as stocks recovered some losses. The greenback had been stronger in early trading as data showing a drop in U.S. housing starts and reports that Spain may seek financial dented investor appetite for risk.
The euro (CUR_EURUSD 1.2320, 0.0000, 0.0000%) traded at $1.2333, compared to $1.2338 in North American trade late Tuesday but off the low seen in the wake of the housing data.
The dollar index (DXY 85.10, +0.02, +0.02%) , which tracks the greenback against a basket of major rivals, traded at 86.940, from 85.985 Tuesday, after touching 86.395 around when U.S. data came out.
The dollar reversed a loss versus the Japanese yen (CUR_USDYEN 91.3600, -0.1600, -0.1748%) , changing hands at ¥91.48 versus 91.49 late Tuesday. The dollar and the yen have both tended to rise when investors turn away from assets perceived to be risky, while declining when risk appetite is on the rise.
"The net read on the economy from this morning's numbers is that fiscal and monetary policy has had a positive effect on growth but that the benefits are beginning to fade," said Steven Ricchiuto, chief economist at Mizuho Securities.
The euro extended its loss slightly after data showed U.S. housing starts fell by a bigger-than expected 10%. A big decline was expected to follow the expiration of a federal tax break for home buyers. Read about the U.S. housing data.
Data also showed U.S. producer prices fell a seasonally-adjusted 0.3% in May. The core rate, which excludes energy and food prices, rose by 0.2%. Economists had expected a 0.6% fall in overall producer prices and a gain of 0.1% in the core rate.
Economists at RDQ Economics said the PPI data was unlikely to trouble the Federal Reserve amid slack in the labor market and signs from the University of Michigan survey that inflation expectations are contained.
Later, the U.S. Federal Reserve said industrial output rose 1.2% in May after a 0.7% gain in April, for the largest rise since August. Manufacturing output rose 0.9% in May. The data slightly outpaced estimates by economists, who had called for a 1% rise in output.
Meanwhile, growing concerns about Spain's fiscal situation weighed on the euro Wednesday, reversing some of the shared currency's recent rebound versus the dollar.
"Fears are rising that Spain could soon be a source of a negative shock," and such anxieties suggest the euro could have a tough time making further gains in the near term, said Jane Foley, research director at Forex.com.
Not for the first time in recent days, the Spanish Finance Ministry on Wednesday denied that a bailout package is being prepared. Read about Spain.
Spanish government bond yields rose Wednesday, with the premium demanded by investors to hold Spanish 10-year bonds over their German counterparts widening to an all-time high of nearly 2.24 percentage points from around 2.11 percentage points the previous day.
U.K. data
The British pound (CUR_GBPUSD 1.4845, +0.0045, +0.3041%) bounced between positive and negative territory after employment data offered a mixed bag, economists said.
The pound lately rose about 0.3% to $1.4849.
The number of British workers claiming jobless benefits in May fell by a larger-than-expected 30,900. But the unemployment rate in the three months ending in April rose to 7.9%. Read about British unemployment data.
