But the dollar retained an upper hand against the yen as wariness about the fragility of Japan's economy persisted in the wake of the Bank of Japan's rate hike on Friday, the first Japanese monetary tightening in a decade.

Broad sterling gains posted after a stronger-than-expected rise in the UK input prices for July also contributed to the pull-back in the dollar, with moves said to be amplified by thin volumes ahead of a market holiday in several European countries.

Most European markets are closed on Tuesday for Assumption Day. The euro ticked higher after German finance minister Hans Eichel said it had the potential to appreciate, but analysts said the single currency was still not out of the woods.

"The euro failed to break below the key $0.90 chart level earlier and that was encouraging," chief strategist at Sanwa International in London Kirit Shah said. "But for the euro to rally substantially it needs to break above $0.9250."

By 0955 GMT the euro was testing chart resistance at $0.9040/45, up from the day's lows just above $0.90. It was more than two per cent away from record highs around $0.8840 hit on May 19.

Dealers said the single currency was underpinned after the European Central Bank allotted 54 billion euros in 14-day refinancing agreements at 4.35 per cent and above for a weighted average rate of 4.37 per cent.

Earlier, stronger-than-expected German retail sales data did little to provide the frail euro with much support against the dollar. German retail sales fell a real 1.3 per cent on the year, but the fall was less than the 2.5 per cent forecast.

Earlier in the day the dollar had stretched as far as 1.7252 against the Swiss franc, its highest since May 25, underpinned by last week's economic data which suggested the US economy was heading for a soft landing.

Firmer US stocks also helped support the US currency earlier on.

"The US Data coming out continues to be stronger than expected, while inflation is remaining subdued and that kind of economic picture is proving to be dollar supportive," said Neil MacKinnon, senior currency strategist at Merrill Lynch.

"You have the US stock markets which are in good shape. On the other hand, the euro is still struggling as there is still a credibility issue and there is no guarantee that higher euro zone rates will push the euro higher.

-- (Reuters)But the dollar had given up some ground after sterling rallied to the day's highs around $1.5050 after British input prices rose 0.4 per cent month-on-month, above an expected increase of 0.1 per cent. "Sterling has been well bid after the data and that has caused dollar to come under pressure generally," said a trader at a German bank in Frankfurt.Meanwhile the yen was mired near day's lows against the dollar and the euro. The dollar was trading at 108.90 yen, while euro/yen was 98.45, near the day's highs.The Bank of Japan on Friday abandoned its zero interest rate policy and raised the overnight call rate target to 0.25 per cent, but the yen was failing to benefit from the move amid concern about the strength of the Japanese economy and possible further bankruptcies."The economic data from now on are going to be key for the yen," said Shah at Sanwa. "If they show continued recovery, that would be positive."Some dealers added the yen would also benefit if the BOJ stuck to its upbeat stance on the economy in its August monthly report expected to be released on Tuesday. BOJ governor Masaru Hayami was also scheduled to hold a news conference on Tuesday. (Reuters)