NEW YORK (Reuters) - The U.S. dollar index reversed course on Tuesday, erasing most of the gains it made earlier in the session as Wall Street came off its lows in choppy trading a day after the Dow and S&P 500 stock indexes posted their biggest declines since August 2011.
The dollar index, which tracks the greenback against a slate of currencies, rose earlier to its highest level in more than a week after two straight sessions of gains as traders piled back into the dollar following a global stock market rout.
The index <.DXY> last rose 0.04 percent at 3:01 p.m. EST (2001 GMT).
On Monday U.S. stock indexes posted sharp declines, leading traders to buy dollars even though the stock sell-off also led investors to moderate their expectations of Federal Reserve rate hikes.
MSCI's gauge of stocks across the globe <.MIWD00000PUS> shed 0.78 percent on Tuesday.
On Wall Street, the S&P 500 <.SPX> was last up 1.07 percent at 2,677.25.
"The movements in currencies are mirroring the movements in stocks," said Kathy Lien, managing director for BK Asset Management in New York.
"Generally speaking, the recovery in stocks, the pullback in VIX (volatility) has led to a decline in the U.S. dollar as investors have stopped piling into risk-aversion trades and stopped unwinding some of their riskier bets."
Traditional safe-haven currencies like the Japanese yen and Swiss franc pared some of their losses against the greenback as stocks moved off their lows.
The dollar rose 0.24 percent to 109.35 yen and gained 0.50 percent to 0.9361 Swiss franc.
Currencies at risk during a global equity slump are higher-yielding commodity-linked currencies like the Australian dollar and emerging market currencies, which often slide when risk appetite drops, analysts said.
The Australian dollar last rose 0.11 percent to $0.79, while the Mexican peso fell 0.90 percent to 18.61 peso.
Data that showed the U.S. trade deficit widened in December to its biggest level in nine years took a backseat as investors focused instead on stock volatility.
(Reporting by Stephanie Kelly and Richard Leong; Editing by Cynthia Osterman)
