The dollar initially posted gains after Citigroup said it would sell a $7.5 billion stake to the Abu Dhabi Investment Authority, the investment arm of the Abu Dhabi government, providing funds to one of the banks hardest hit by the global credit crunch triggered in August by defaults on U.S. mortgages.
Investors interpreted Citi's move as a sign that financial institutions were repairing the damage from a meltdown in the U.S. subprime mortgage market and the resulting credit crunch, which has been a big factor behind recent dollar weakness.
The dollar pulled away from a 2-1/2-year low against the yen touched on Monday to trade at 107.90 in early New York trade, earlier having climbed as high as 108.80, according to Reuters data. The yen fell broadly as news of the Citi stake sale prompted a recovery in the Nikkei share average, warming demand for risky carry trades.
But as traders reached their desks for the New York session, colder realities prevailed.
The dollar was last little changed against the Swiss franc at 1.0964 after climbing as high as 1.1024. Sterling/dollar was little changed at 2.0707 after an early high of $2.0757.