* Euro recovers from 1-mth low vs dollar on short-covering
* Euro remains under pressure ahead of ECB rate decision
* Eyes on U.S. December retail sales figures later Wednesday
By Kaori Kaneko
TOKYO, Jan 14 (Reuters) - The euro recovered from a one-month low against the dollar on Wednesday but remained under downward pressure as investors braced for a European Central Bank rate decision.
Investors also found it hard to buy the dollar as they awaited figures on U.S. retail sales for December later on Wednesday, which are expected to give a grim picture of private consumption.
The European single currency's gains were limited due to the recent threat of ratings downgrades for some euro-zone countries, with much of the day's recovery merely due to short-covering, traders said.
"The surrounding environment for the euro is weak and there are no reasons to favour the currency," said Nobuaki Kubo, vice president at BBH Investment Services.
Markets expect the ECB to cut interest rates on Thursday by 50 basis points from the current 2.5 percent, to help fight the economic downturn.
If the ECB does not take drastic easing steps, the euro could be hurt further on a view that the central bank is being too slow in helping the faltering economy, Kubo said.
The euro rose to $1.3275, up 0.7 percent from late New York trade, after hitting a one-month low of $1.3140 on trading platform EBS in U.S. trading.
Against the yen, the single currency gained 0.8 percent to 118.84 yen. It had fallen as low as 117.13 yen on EBS in U.S. trading, the lowest since early December.
Rebounds in Asian shares on Wednesday helped the euro to pare some of its losses but investors remained hesitant to go beyond short-covering.
Tokyo's Nikkei share average rose 0.8 percent after a sharp sell-off the previous day.
A recent slump in global stocks revived investors' risk aversion and had prompted investors to move away from higher-yielding currencies.
"A trend of risk aversion in the market has not changed on a bleak global economic outlook and the yen is basically in demand. But since volatility is high in the market, prices changes could look enormous," said Satoshi Okagawa, head of the FX forward trading group at Sumitomo Mitsui Banking Corporation.
Investors were looking ahead to U.S. December retail sales figures due out at 1330 GMT, which will reflect results of Christmas shopping, and traders said this could be a reason for the dollar's broad weakness in Asian trading.
The dollar index, which measures the value of the greenback against a basket of currencies, was down 0.6 percent at 83.801.
Sales at U.S. retailers are expected to post a 1.2 percent fall for December to mark a sixth straight monthly drop after a 1.8 percent decline in the previous month, according to a Reuters poll.
"Following weak sales figures at top U.S. retailer Wal-Mart, the year-end shopping sales are expected to be bleak. This view prevented the dollar from rising further against the yen," a trader at a Japanese bank said.
Traders said the market has priced in weak sales data in the U.S. to some extent given a severe jobs environment but weaker-than-expected results would prompt investors to sell the dollar.
The dollar was up 0.2 percent against the yen at 89.55 yen. (Reporting by Kaori Kaneko; Editing by Michael Watson)