* Dollar dips vs basket, remains in tight ranges
* U.S. retail sales beat expectations
* Sterling underperforms on expectations of more BoE QE (Recasts, adds comment, updates prices, changes byline)
By Wanfeng Zhou
NEW YORK, Sept 15 (Reuters) - The U.S. dollar edged lower against a basket of currencies on Tuesday as gains in global stock markets reduced the greenback's appeal as a safe haven.
Investors' appetite for risk improved after Wall Street rose on a government report showing sales at U.S. retailers hit their fastest pace in 3-1/2 years in August. European shares ended higher, led by banks.
But major currency pairs were confined in narrow ranges as investors paused after pushing the U.S. dollar to a 2009 low versus the euro and a near one-year low against a basket this month.
"The U.S. dollar is oversold and the market is using the opportunity just to realign the positioning of the significantly oversold levels," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto. "Overall, the market is still looking for direction."
In early afternoon trading in New York, the ICE Futures U.S. dollar index, which measures the dollar's value against a basket of other major currencies, fell 0.25 percent to 76.504. The index hit a near one-year low of 76.457 last week.
The euro was up 0.1 percent at $1.4635 while the dollar was little changed at 90.98 yen.
Earlier in the session, the dollar had risen after strong retail sales data bolstered hopes the United States will be at the forefront of a global economic recovery and that the Federal Reserve would raise interest rates sooner rather than later.
"There is no question of this being positive data, even though the cash-for-clunkers program was a huge part of it," said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon in New York. "It's consistent with the story that the economy has bottomed though not yet in a position for fiscal and monetary stimulus to be removed."
Sterling dropped after Bank of England Governor Mervyn King said the central bank was looking at reducing the rate on commercial banks' reserves, fueling speculation of further quantitative easing.
Sterling was last down 0.6 percent against the dollar at $1.6467 and off 0.7 percent versus the euro at 88.86 pence. (Additional reporting by Nick Olivari; Editing by James Dalgleish)