* Dollar gets support after drop in US consumer confidence
* Euro zone data appear to offer support to euro (Updates prices, adds details, changes byline)
By Nick Olivari
NEW YORK, July 27 (Reuters) - The euro slipped against the dollar on Tuesday, backing off an 11-week high as a drop in U.S. consumer confidence to its lowest level since February made investors more cautious and risk-averse.
The euro traded at its highest level since May against the dollar early in the session but the single currency erased its gains after the private confidence report for July as weaker U.S. data tends to trigger risk aversion. For details, see [ID:nN27219358]
"We have a little bit of a rally in the dollar after this number because even though consumer confidence fell to a five-month low, the euro is still struggling to sustain a drive above 1.30, having tested that level on four separate occasions this month," said Kathy Lien, director of currency research at GFT Forex in New York.
In mid afternoon trading in New York, the euro was 0.2
percent lower at $1.2966
Against the yen, the dollar rose more than 1 percent to
touch a session high at 87.94 yen
Still, analysts said sentiment on the European currency has improved and Tuesday's data may not be weak enough to prevent further gains in the euro and other higher-yielding currencies.
"The euro has given back some of its gains early in the U.S. trading session but with optimism prevailing overall, our bias remains for global currencies to edge higher this week," said Nick Bennenbroek, head of currency strategy at Wells Fargo Bank in New York.
Declines in the euro were seen limited while it remained above support at $1.2870 -- close to its 100-day moving average -- and last week's low around $1.2730.
The recent run of better euro zone data continued on Tuesday, with above-forecast euro zone money supply and German consumer confidence figures. [ID:nLDE66Q0O4] [ID:nLDE66P1NX]
The fundamental outlook "seems to be deteriorating in the U.S., while the state of affairs in the euro zone seems to be looking up relative to very depressed expectations that had persisted for much of 2010," said Sacha Tihanyi, a currency strategist at Scotia Capital in Toronto.
NEXT TARGET
The next target for the euro, which has risen close to 10 percent since it fell below $1.20 last month, will be $1.3125, the 38.2 percent retracement of its November-June fall, technical analysts said.
"We are seeing more and more banks alter their forecasts higher in euro/dollar either from research or from technical teams," said Brad Bechtel, a managing director for trading at Faros Trading LLC in Stamford, Connecticut.
"The 38.2 percent Fibonacci line comes in around 1.3125 on the charts and is going to be the first line of resistance," he said.
Still, other analysts, like Shaun Osborne at TD Securities, said it may be too soon to assume the worst is over for the single currency.
"Everyone seems to love the euro now. They've gone from thinking the euro zone was going to fall apart to assuming things are safe and sound," he said. "At best, (the gains) appear to be short-covering rather than people going outright long the euro."
The aussie rose to an 11-week high against the dollar