By Richard Leong
NEW YORK (Reuters) - The euro on Tuesday rebounded from three-month lows against the dollar as traders pared bearish bets as Greece proceeded to adopt the tough measures required by its lenders to obtain cash and avert bankruptcy.
In light volume, the single currency's bounce knocked the greenback from its three-month peak against a basket of currencies, while commodity-related currencies climbed, partly on a pause in gold's recent selloff.
Despite Tuesday's setback, the dollar is expected to strengthen again in the coming weeks as traders anticipate the U.S. Federal Reserve will raise interest rates by year-end. Fed Chair Janet Yellen and other top central bankers have said higher rates are appropriate later this year if the U.S. economy continues to strengthen.
"The tension is fading on the euro down there," said David Rodriguez, quantitative strategist at FXCM in New York. "The dollar is still in control."
The euro (EUR=) was last up 1.1 percent at $1.0943 after retesting a near three-month low of $1.0808 set on Monday. It is down 1.7 percent so far this month.
"There were some stops triggered and some traders had to cover," said Mark McCormick, currency strategist at Credit Agricole in New York.
The greenback weakened 0.3 percent to 123.88 yen (JPY=) after hitting a five-week high of 124.48 late in the Asian session.
The dollar index (.DXY) shed 0.7 percent to 97.328 after touching a three-month peak at 98.151 earlier Tuesday.
The pullback in the dollar was compounded by a decline in U.S. Treasuries yields on safe-haven demand for bonds that emerged due to losses in U.S. and European stock prices. [US/] [MKTS/GLOB]
Meanwhile, the gold market stabilized after a steep drop on Monday, helping commodity-linked currencies including the Canadian, New Zealand and Australian dollars.
But minutes from the Reserve Bank of Australia's latest meeting saw more declines in an Aussie dollar already at a six-year low.
RBA's view differed from New Zealand's, where Prime Minister John Key on Monday offered the currency some verbal support.
The Aussie dollar gained 0.9 percent at $0.7434 (AUD=), while the kiwi jumped 1.2 percent to $0.6638 (NZD=).
Spot gold prices (XAU=) held above a five-year low but worries remained that their fall would resume toward $1,000 an ounce due to sluggish Chinese demand and a possible Fed rate hike that would raise the appeal of the dollar. [GOL/]
(Additional reporting by Patrick Graham in London; Shinichi Saoshiro in Tokyo; Editing by Peter Galloway and Meredith Mazzilli)