By Michael Connor

NEW YORK (Reuters) – European stocks held near record highs on Tuesday on signs the euro zone economy was gaining momentum, while the dollar recovered from recent losses and oil fell.

On Wall Street, the Dow Jones industrial average <.DJI> fell 15.21 points, or 0.08 percent, to 18,100.83, the S&P 500 <.SPX> lost 1.38 points, or 0.07 percent, to 2,103.04 and the Nasdaq Composite <.IXIC> added 7.74 points, or 0.15 percent, to 5,018.71.

Europe’s FTSEurofirst 300 <.FTEU3> index of top shares had steadied near a recent 7-1/2-year high at 1,605.27 after falling earlier in the session on Chinese economic data.

The euro was higher earlier after a stronger-than-expected survey on euro zone manufacturing that showed factory business hitting a four-year high. Subsequent strong data in the United States, however, shifted sentiment in favor of the greenback.

The euro <EUR=> was last down 0.25 percent. The dollar has been on a roll in the last 12 months, rising more than 20 percent against a basket of major currencies in expectation of higher U.S. interest rates.

“Any positive surprises from the euro area are further adding to this euro/dollar rally; however we think this is temporary,” said Nikolaos Sgouropoulos, foreign exchange strategist at Barclays in London. “We still believe in the dollar strength trend going into the second half of the year.”

Those gains have been tempered somewhat of late after the Federal Reserve cut its forecasts for U.S. inflation and growth, making investors reconsider when the Fed might start raising rates.

The dollar index <.DXY> was last up 0.2 percent at 97.231, below its 12-year peak of 100.390 struck on March 13.

San Francisco Fed President John Williams said on Tuesday the strong dollar would drag on growth this year though the U.S. economy was strong enough to handle it.

Bond yields fell as inflation remains low. Core U.S. consumer inflation is running at a 1.7 percent year-over-year rate and U.K. inflation was unchanged on an annual basis, the first time that has happened since record-keeping began in 1989.

Benchmark 10-year U.S. Treasury notes <US10YT=RR> were last up 3/32 in price, with yields falling to 1.90 percent

The China flash HSBC/Markit Purchasing Managers Index dipped to 49.2 in March, below the 50 level separating expansion from contraction. Economists polled by Reuters had forecast a reading of 50.6, slightly weaker than February’s 50.7.

The Chinese data weighed on oil prices. Brent crude fell under $ 55 a barrel <LCOc1> as Saudi Arabia said its production was close to an all-time high. [O/R]

Japan’s Nikkei stock average <.N225> slipped 0.2 percent, pulling away from the previous session’s 15-year highs.

In Japan, a similar manufacturing survey added to concerns that its slowly recovering economy may also be losing momentum, with activity expanding at a much slower clip as domestic orders contracted.

(Additional reporting by Jemima Kelly, Ahmed Aboulenein, Patrick Graham and John Geddie in London, Blaise Robinson in Paris and Lisa Twaronite in Tokyo; Editing by Mark Trevelyan and James Dalgleish)