Dollar gives back gains as Greek debt talks stall, euro steady

By Shinichi Saoshiro

TOKYO (Reuters) - The dollar steadied after giving back gains against the yen early on Thursday as debt negotiations to avert a Greek debt default hit a bump, while the euro treaded water after showing a more limited response.

The U.S. currency fetched 123.88 yen , pulled back from a one-week high of 124.38 reached overnight after data showed the U.S. economy contracted in the first quarter but less than previously estimated.

The greenback benefited as market focus appeared to shift back to prospects of higher U.S. interest rates from the Greek saga, which began the week with optimism that a deal will be finally be concluded.

But it lost traction as U.S. debt yields fell when debt talks stumbled yet again, with euro zone finance ministers accusing Athens of refusing to compromise despite a payment deadline looming fast next week.

The euro reacted less to the latest impasse in the negotiations, sticking to a tight range and stood little changed at $1.1204 , keeping some distance from a two-week low of $1.1135 hit on Tuesday.

"Euro/dollar responded less compared to dollar/yen as underlying optimism that a deal will be sealed by the month's remains intact amid pessimism over the talks breaking down," said Junichi Ishikawa, market analyst at IG Securities in Tokyo.

"Such optimism is reflected by the fact the euro is actually garnering bids against the sterling and Swiss franc. The next focal point is tonight's meeting of European Union leaders and whether governments' top level participants can reach an agreement."

European Union leaders are due in Brussels for a summit later on Thursday.

The New Zealand dollar struggled near five-year lows as the prospect of more interest rate cuts from the central bank there continued to simmer.

The kiwi fetched $0.6890 after striking $0.6815 on Tuesday, its lowest since mid-2010.

Its Australian counterpart traded little changed at $0.7709 . In the absence of major Chinese data on Thursday the Aussie was expected to stay in a narrow range.

(Editing by Eric Meijer)