* Dollar index flat to marginally higher
* USD back below 124.00 yen, euro holds above $1.0900 (Recasts after start of European trade, changes dateline from previous SINGAPORE/SYDNEY)
By Patrick Graham
LONDON, July 22 (Reuters) - The dollar lost more ground on Wednesday after profit-taking drove its biggest decline in a month in the previous session, casting more doubt on whether it can rally further after a year of gains.
The U.S. currency sank almost 1 percent in U.S. and Asian time on Tuesday, hurt by poor earnings and the lack of more impetus for a month-long rally due to expectations the Federal Reserve will raise interest rates by December.
The dollar gained around 25 percent against the euro and a basket of currencies from June of last year to mid-March, and more analysts still think it will rise than believe it has run its course.
But its inability to trade stronger than $1.08 per euro since April is beginning to trouble those betting on a run to parity against the single currency.
"The dollar has definitely run out of steam for a moment," said Piotr Matys, a currency strategist with Rabobank in London.
"Still, the fact that the Fed is going to raise rates at some stage this year means we remain constructive on the dollar. Sentiment towards the euro is weak and we think it is a sell on the rallies."
By GMT 0804, the dollar was 0.1 percent lower on the day against both the euro and a basket of currencies at $1.0941 and 97.3292 .DXY respectively, having fallen back from a three-month high of 98.151 on Tuesday.
"There was no obvious catalyst for the dollar pullback but USD losses coincided with a retreat in equity markets and lower U.S. front-end yields," analysts at BNP Paribas wrote in a note to clients. "We expect to see good interest to buy the U.S. currency on this pullback and we remain generally bullish."
U.S. stocks fell on Tuesday after IBM IBM.N and United Technologies UTX.N both reported their earnings fell in the second quarter. Declining stocks made bonds look more attractive and nudged Treasury yields lower, which weighed on the dollar. ID:nL1N1012F3
The dollar eased 0.1 percent to 123.67 yen JPY= , slipping from Tuesday's high of 124.48 yen, its strongest in about six weeks.
On Tuesday, comments from Bank of Japan Governor Haruhiko Kuroda had pushed the dollar down versus the yen. Kuroda said he expected a tight labour market to cause inflation to accelerate in coming months and brushed off the idea more quantitative easing was needed. ID:nL3N1014SJ
Kuroda's comments suggested the central bank has little desire to add to its monetary stimulus, said Masafumi Yamamoto, senior strategist for retail financial service provider Monex Inc. in Tokyo.
"It reinforces the view that fresh yen-selling factors are unlikely to emerge from Japan," Yamamoto said.