FOREX-Dollar down vs euro, but on track for monthly gain

                                
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 * Dollar headed to second straight monthly gain vs euro
                                
 * U.S. personal income rose 0.2 percent in April
                                
 * German retail sales fell unexpectedly
                                
 By Vivianne Rodrigues
                                
 NEW YORK, May 30 (Reuters) - The dollar fell against the
euro on Friday as some investors sold the U.S. currency after a
string of recent gains had pushed it to its first back-to-back
monthly gains since January 2007.
                                
 Demand for the greenback increased recently as oil prices
eased from record highs and U.S. government data showed tame
inflation.
                                
 Euro zone inflation, however, bounded to a historic peak of
3.6 percent in May, data showed on Friday, while German retail
sales in April fell for the second month in a row.
                                
 "The dollar had two good months of gains versus the euro,"
said Joe Manimbo, a currency trader at Ruesch International in
Washington. "The greenback is selling off a bit today, but it's
Friday and some investors may want to cash in some gains after
the good run in the currency ahead of the weekend."
                                
 In midday trading in New York, the euro was 0.2 percent
higher at $1.5548 <EUR=>, after earlier trading as low as
$1.5463. The euro zone common currency was headed for a second
consecutive month of declines against the greenback, according
to Reuters data.
                                
 A government report on Friday showed U.S. personal spending
rose in April in line with forecasts and a key measure of
inflation moderated. For details, see [ID:nN29395887]
                                
 And the dollar also garnered broad support this week from a
further retreat in oil prices from last week's record of
$135.09 per barrel.
                                
 "The personal income and spending report fits in nicely
with recent data reflecting a bottom has been put in for the
dollar," said Michael Woolfolk, senior currency strategist at
Bank of New York Mellon. "The focus right now is also on oil
prices."
                                
 Other data on Friday showed business activity in the U.S.
Midwest contracted in May for the fourth consecutive month, but
the rate of downturn moderated. [ID:nN30365493]
                                
 "It is a better-than-expected report," said Ron Simpson,
director of foreign exchange research at Action Economics in
Tampa, Florida. "Overall, this is good news for the dollar. We
have had decent data. Not burning down the barns, but definite
signs of a stabilizing economy."
                                
 EURO ZONE INFLATION EYED
                                
 In an interview published on Friday, European Central Bank
President Jean-Claude Trichet said that the central bank will
do everything it can to preserve price stability and reinforce
expectations of low inflation. [ID:nL3020162]
                                
 "The euro is no different to many other currencies -- stuck
between a rock and a hard place with slowing growth and rising
inflation," said Kamal Sharma, a G10 strategist at JP Morgan in
London.
                                
 "Inflation is likely to remain above the ECB's target in
the near term. But against the backdrop of slowing growth ...
the ECB is unlikely to pull the trigger on rate hikes through
the rest of the year."
                                
  Against the yen, the dollar was nearly flat on the day at
105.50 yen <JPY=>, but still within sight of a three-month high
of 105.87 hit on Thursday.
 (Additional reporting by Nick Olivari in New York and Veronica
Brown in London; Editing by Gary Crosse)