(Adds details, updates prices)
By Lucia Mutikani
NEW YORK, Oct 23 (Reuters) - The dollar slipped on Tuesday, a day after its strongest rally against the euro in more than a year, as rebounding global stock markets rekindled investors' appetite for risky assets.
Market attention was also focused on Wednesday's U.S. existing home sales report amid fears the data would point to a further deterioration in the housing market and increase the chances of more Federal Reserve interest rate cuts this year.
"Rising stocks have increased risk appetite and we are seeing the reversal of the previous day's flight to safety, so consequently higher-yielding and riskier assets are outperforming," said Omer Esiner, foreign exchange analyst at Ruesch International in Washington.
In late New York trade, the euro was up 0.6 percent against the dollar at $1.4262 <EUR=>. The dollar index, which measures the currency's value against a basket of six major currencies, was down 0.7 percent at 77.539 (.DXY: Quote, Profile, Research), but up from a record low of 77.093 touched on Monday.
Analysts predicted a $1.4240 to $1.4300 trading range for the euro ahead of Wednesday's housing data. A report on U.S. new home sales is due on Thursday.
While the data will not on their own prompt the central bank to ease, the prospect of problems in the broader economy will force the Fed's hand to promote growth, analysts say.
"The consensus is that continued weakness in housing will inevitably prompt the Fed to cut lending rates again when they meet next week. That's keeping the dollar's tone somewhat more negative today," said Esiner.
U.S. interest rate futures are pricing in a roughly 86 percent implied chance of a quarter-percentage-point cut in the federal funds target rate to 4.50 percent at the end of their Oct. 30-31 policy meeting. Such a step, coming after September's half-point cut, would further reduce the appeal of dollar-denominated assets and undermine the greenback.
Sterling rose 1.0 percent to $2.0510 <GBP=>. The dollar fell 0.4 percent against the Swiss franc to 1.1733 <CHF=>.
Firmer equity markets prompted some investors to move back into carry trades, hitting the yen and boosting high-yielding currencies such as the Australian, New Zealand and Canadian dollars.
The carry trade is a strategy where investors buy securities in a high-yielding currency funded by borrowing in a low-yielding currency such as the yen.
"With the return to firmer equity markets, investors are willing to take more risk and with that return to carry trades," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto.
The dollar rose 0.4 percent to 114.88 yen <JPY=>, above Monday's six-week low at 113.23 yen, according to Reuters data. The euro was up 1.0 percent at 163.84 yen <EURJPY=>, its biggest one-day percentage gain in a month.
The high-yielding Australian dollar <AUD=> and New Zealand <NZD=> dollar gained over 1 percent. Both currencies also rose against the yen. The Australian dollar traded up 1.3 percent against the U.S. unit at $0.8979, while the New Zealand dollar climbed 1.4 percent to $0.7572.
The Canadian dollar <CAD=> touched a 33-year high against the U.S. dollar after Canadian retail sales data for August beat expectations. The U.S. dollar was last trading down 1.3 percent at C$0.9658.