Dollar stands tall as German political deadlock pressures euro

By Lisa Twaronite

TOKYO (Reuters) - The dollar gave back some of its gains in Asian trading on Tuesday but remained not far from a one-week high against a basket of currencies as German political uncertainty continued to pressure the euro.

The dollar index, which tracks the greenback against a basket of six major rival currencies, inched 0.1 percent lower to 94.036 , but still within sight of its overnight peak of 94.104, its highest since Nov. 14.

The euro edged up 0.1 percent to $1.1738 , nursing losses after dropping to $1.1722 in the previous session after German coalition government talks collapsed.

German Chancellor Angela Merkel, whose conservative bloc lost seats in September's election, said she would inform the German president that she could not form a coalition, after the pro-business Free Democrats withdrew from negotiations.

Merkel said she would prefer a new election to ruling with a minority, but Germany's president told the parties they owed it to voters to try to form a government.

"It was primarily a euro weakness story, based on the failure to form a coalition government in Germany," said Bill Northey, chief investment officer at the private client group of U.S. Bank in Helena, Montana.

"Stepping back from the daily activities, the big mountain that we're still looking to traverse is still tax reform -- what form, and on what timeline," Northey said.

U.S. Republicans are not expected to push major tax cuts through Congress this year, according to a majority of economists in a Reuters poll, who were also sceptical that tax reform would provide a significant boost to the economy.

Trading was expected to be relatively thin this week ahead of the U.S. Thanksgiving holiday on Thursday.

The calendar is relatively sparse ahead of the holiday, with Federal Reserve Chair Janet Yellen scheduled to give a speech late on Tuesday. Minutes from the Fed's November meeting will be released on Wednesday.

Against the yen, the dollar was slightly lower on the day at 112.59 , holding above its overnight low of 111.89.

Bitcoin edged down on Tuesday after setting a fresh record high of $8,226 on Monday.

(Reporting by Lisa Twaronite; Editing by Eric Meijer)