* Dollar index up 0.3 percent, traders book profits
* G8 meet in focus, ministers to discuss exit strategies
* Optimistic global economy view may pressure dollar more
(Adds comment, details, updates throughout; previous TOKYO)
By Naomi Tajitsu
LONDON, June 12 (Reuters) - The dollar edged up against a basket of currencies on Friday, recovering as traders booked profits from the U.S. currency's slide earlier this week, while investors awaited a G8 finance ministers meet later in the day.
The euro hit the day's low against the dollar after European shares initially slipped in early trade. This helped the U.S. currency to recover from losses on Thursday, when improving U.S. economic data stoked risk demand and prompted dollar selling.
The dollar has been on the back foot during a week of fairly volatile trade, and is set to end the week 1.3 percent lower against a currency basket after investors reassessed speculation that U.S. interest rates may rise from near zero by year-end.
Analysts said that trade would be subdued as few European economic data and events were due on Friday, while investors would focus on comments that may come out of the G8 gathering.
Sources have said that currencies would not be a major point of discussion at the two-day meeting, but a German official said that eventual exit strategies from policies to deal with the financial crisis will be a topic.
"We've been swinging back and forth quite a bit this week ... With the G8 in front of us, it may offer a good excuse not to engage to heavily in the market at the moment," said Dag Muller, technical analyst at SEB in Stockholm.
Market participants said that finance ministers would likely promote the idea that the global economy is on the path to recovery, which may prompt more demand for riskier assets.
"(The finance ministers) may underpin positive sentiment in the market ... if you think the dollar is tightly linked to risk appetite, then this would be dollar negative."
By 0806 GMT, the euro traded 0.2 percent lower at $1.4070, after slipping to a session low around $1.4055, still above the week's low of $1.3803 hit on Monday.
The dollar index, which tracks the currency's performance against six major rivals, edged up 0.2 percent to 79.727.
Against the yen, the dollar was at 97.92 yen, up 0.4 percent on the day.
Sterling was down 0.4 percent at $1.6510, but was on track to end the week more than 3 percent higher as signs of a UK economic recovery have boosted the pound this week.
IMPROVING ECONOMY?
An improvement in data on U.S. initial jobless claims and retail sales on Thursday had stung the dollar as traders saw the releases as evidence that the economy is improving. Speculation of a recovery has been raising the market's appetite for currencies seen as being higher risk, such as sterling.
Some analysts said the dollar was supported after a solid auction of 30-year U.S. Treasuries helped to convince investors that demand for U.S. assets remains intact despite concerns about Washington's fiscal position and Russia's announcement this week that it will cut the share of Treasuries in its reserves.
The dollar has suffered this week, unable to hold rallying momentum after last week's U.S. jobs data showed the pace of job losses slowed sharply in May and stirred talk that the Federal Reserve may raise interest rates later this year.
Many traders and economists are sceptical that such a rate rise will take place, and U.S. two-year Treasury yields have backed down from seven-month highs hit earlier in the week.
(Reporting by Naomi Tajitsu; editing by Toby Chopra)