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* Dollar index retreats from two-week highs set last week
* Euro gains despite undecisive Spanish election results
* Long dollar positions trimmed further - IMM data
By Richard Leong
NEW YORK, Dec 21 (Reuters) - The dollar weakened against a basket of currencies in thin trading on Monday as the euro strengthened in the wake of an inconclusive election result that may increase unease over Spain's financial stability.
With the historic U.S. rate liftoff in the rear view mirror, traders focused their attention on slumping commodities prices on the global economy and central bank policies with oil hitting fresh 11-year lows. O/R
The dollar index .DXY has retreated from two-week highs following the U.S. Federal Reserve's first rate increase in nearly a decade last Wednesday.
"The U.S. rate hike went off extremely well. It should be dollar positive over time," said Alan Ruskin, global head of G10 currency strategy at Deutsche Bank (DE:DBKGn) in New York.
Still the greenback lost ground broadly at a start of an abbreviated trading week when U.S. and most European markets will close on Friday for Christmas.
The euro rose despite no parties in Spain won a clear mandate to govern this weekend, raising concerns about the economic reforms in the euro zone's fourth biggest economy. urn:newsml:reuters.com:*:nL8N14A273
The single currency was up 0.4 percent at $1.0911 EUR= and 132.24 yen EURJPY= .
The yen held steady against the greenback at 121.22 yen. JPY=
The dollar index .DXY was down 0.3 percent at 98.445 after hitting a two-week high of 99.294 last Thursday.
Given the broad consensus among many analysts and traders that the dollar will rise in the first quarter, the now minimal scale of those bets leaves room for some of the big money investors who have cashed up this month to buy back in.
"I find it hard to imagine big moves in the dollar against the euro or yen by the end of the year, but there is certainly some potential for it to gain against sterling or some of the commodity-linked currencies," said Simon Derrick, chief currency strategist at Bank of New York Mellon (N:BK) in London.
Positioning data from last Tuesday as predicted by Citi and others last week, showed a further trimming of net bets on the dollar. IMM/FX
Among commodity-linked currencies, the Australian dollar was up 0.1 percent at $0.7192 AUD=D4 , while the New Zealand dollar NZD=D4 was nearly 0.7 percent higher at $0.6777.