* Wall Street pulls back from Monday's euphoric gains
* World stocks hit 5-week high before easing
* Dollar rises on hopes U.S. economy will revive (Updates with U.S. markets, changes dateline from London, byline)
By Burton Frierson
NEW YORK, March 24 (Reuters) - Wall Street dipped on Tuesday, pulling world stocks off 5-week highs as euphoria over plans to purge the U.S. financial sector of bad assets faded.
The dollar gained, however, as currency traders bet the U.S. Treasury's plan, announced on Monday, to persuade private firms to help rid banks of up to $1 trillion in bad assets would put the United States on the path to recovery before others.
Strength in the dollar put oil and gold on the defensive and also contrasted with Wall Street's retreat, where equities investors reassessed whether and how soon any plan for disposing of bad assets might translate into good health in the financial sector.
"It's usually when there's extreme panic and questions about the overall economic system, like we saw in late February and early March, that bottoms are made," said Tim Ghriskey, chief investment officer of Solaris Asset Management, in Bedford Hills, New York.
"I don't think that means we're off to the races and we're going to see a major rally here, but there are certainly signs of better times ahead."
Globally, the MSCI World index of stocks eased slightly but only after rising to its highest level in more than a month.
U.S. stocks had surged about 7 percent on Monday, helping lift the benchmark S&P 500 index more than 20 percent from the bear market closing low set on March 9, but the index remains off nearly 10 percent for the year.
By midday on Tuesday U.S. indexes were down on declining energy shares and profit-taking in financials after Monday's rally. The Dow Jones industrial average was off 54.40 points, or 0.70 percent, at 7,721.46.
The Standard & Poor's 500 Index was down 7.23 points, or 0.88 percent, at 815.69. The Nasdaq Composite Index was down 24.95 points, or 1.60 percent, at 1,530.82.
In Tokyo, Japan's Nikkei average jumped 3.3 percent to hit a 2-1/2-month closing high on Tuesday in the spillover of the U.S. plan to deal with bad assets plaguing the financial sector.
The benchmark Nikkei ended up 272.77 points at 8,488.30, its highest close since Jan. 9.
European shares closed slightly higher.
The pan-European FTSEurofirst 300 <.FTEU3> index of top shares was 0.2 percent higher at 740.86 points at provisional close, after being up as much as 750.71 points and down as low of 734.04 points, earlier in the day.
EURO PRESSURE
On the currency market, the dollar's gains were helped by pressure on the euro after policymakers suggested that interest rates in the region could fall further, just as data showed manufacturing and services sector activity continued to contract significantly.
European Central Bank governing council member Erkki Liikanen said the central bank has not used up all its "room for maneuver" on interest rates [ID:nLO85011].
The news followed comments overnight from ECB President Jean-Claude Trichet, who again said interest rates could be cut to help kick-start the economy. [nN23541321].
"The ECB has room to cut rates, which may undermine the euro slightly, but it's more a dollar story than the euro," said Carole Lualhere, currency strategist at Societe Generale in Paris.
Indeed, the news out of Europe contrasted with glimmers of hope in U.S. data, with figures showing a 1.7 percent rise in home prices from January from December.
Some took it as a sign that the U.S. housing sector, whose spectacular tumble caused the global financial turmoil, might be pulling out of its tailspin.
It came a day after data showed sales of previously owned U.S. homes rose at their fastest pace in nearly six years in February.
The dollar was up against a basket of major trading-partner currencies, with the U.S. Dollar Index <.DXY> up 0.28 percent at 83.702 from a previous session close of 83.465.
The euro
U.S. Treasury debt prices trimmed losses after the Treasury's $40 billion two-year note sale alleviated worries about faltering demand for government securities.
Benchmark 10-year notes were down 18/32 in price, compared with a 21/32 decline before the auction results. The yield was 2.72 percent, up from 2.65 percent late on Monday.
In energy and commodities prices, U.S. light sweet crude oil fell $1.04, or 1.93 percent, to $52.76 per barrel and spot gold prices fell $14.75, or 1.57 percent, to $922.40.
The Reuters/Jefferies CRB Index was down 1.49 points, or 0.65 percent, at 228.05.
(Additional Reporting by Reuters bureaus worldwide; Editing by Kenneth Barry)