By Alun John

HONG KONG (Reuters) - The dollar softened a little on Tuesday in the wake of improving market appetite for risk assets and currencies, extending its overnight losses following a blow to Democratic spending plans in Washington.

But moves were muted with a surge of cases of the Omicron variant of the new coronavirus, which has caused some countries to reimpose restrictions, deterring traders from moving too aggressively.

The dollar index, which measures the currency against six major peers, dropped to as low as 96.450, down marginally on the day after losing 0.12% overnight.

The euro inched higher to $1.1282, and the safe haven yen lost some ground to 113.7 per dollar, both moves in keeping with Tuesday's gains in Asian equities, U.S. share futures and oil. [MKTS/GLOB]

But in terms of the bigger picture, the dollar is still strong, having approached 16-month highs at 96.914 last week, after the U.S. Federal Reserve opened the door to as many as three interest rate increases in 2022.

Monday's loses came after U.S. Senator Joe Manchin, a moderate Democrat who is key to President Joe Biden's hopes of passing a $1.75 trillion domestic investment bill - known as Build Back Better - said on Sunday he would not support the package.

"The dollar pulled back on the breakdown of Build Back Better. Less stimulus, weaker growth, and rates dropping at the short-end was enough to push the dollar slightly lower," said Kyle Rodda, an analyst at IG markets.

Two-year U.S. Treasury yields on Monday touched 0.5870%, their lowest since Dec. 3, also causing the yield curve to steepen. [US/]

Two-year notes last yielded 0.6317% and yields on benchmark 10-year Treasuries were steady at 1.4242%.

The pound was soft at $1.3213 after British Prime Minister Boris Johnson said on Monday he would tighten coronavirus curbs to slow the spread of the Omicron variant if needed.

Omicron infections, which are multiplying rapidly across Europe and the United States, and doubling every two or three days in London and elsewhere, caused a sharp sell-off in share markets on Monday as well as oil.

The Aussie dollar stemmed recent losses and was steady at $0.7112, while the New Zealand dollar stabilised at $0.6717 just above its 13-month low, even as the country delayed the planned reopening of its international border due to COVID-19 fears.

Turkey's lira was subdued on Tuesday after a volatile session the day before.

On Monday, it first fell as much as 10% before ending the session up more than 20% after President Tayyip Erdogan introduced a series of steps that he said would ease the burden of the weakened currency on Turks.

He also vowed to press on with a low interest rate policy that led to the lira's slide in the first place.

Bitcoin gained 4% to $48,700 after trending lower for the past few weeks.

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Currency bid prices at 0457 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $1.1280 $1.1274 +0.04% -7.69% +1.1287 +1.1274

Dollar/Yen 113.6700 113.6400 +0.01% +10.03% +113.7000 +113.6200

Euro/Yen 128.22 128.11 +0.09% +1.02% +128.3000 +128.0600

Dollar/Swiss 0.9217 0.9214 +0.01% +4.15% +0.9219 +0.9210

Sterling/Dollar 1.3209 1.3210 +0.03% -3.28% +1.3214 +1.3196

Dollar/Canadian 1.2926 1.2944 -0.14% +1.51% +1.2944 +1.2915

Aussie/Dollar 0.7110 0.7110 +0.01% -7.56% +0.7120 +0.7098

NZ 0.6723 0.6716 +0.10% -6.38% +0.6728 +0.6704

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ