* Markets await mid-point fixing by Chinese central bank
* Euro retreats to $1.23, vulnerable if yuan does not rise
* Dollar index posts bullish reversal, more gains seen
*
By Anirban Nag
SYDNEY, June 22 (Reuters) - The euro was subdued on Tuesday as investors anxiously waited to see how far and fast the Chinese authorities would let their currency rise amid speculation any appreciation would be slow at best.
All eyes are on the yuan's mid-point fixing at 0115 GMT to see whether the People's Bank of China would let it appreciate from Monday's steady 6.8275 per dollar.
The market took the yuan 0.42 percent higher on Monday, its biggest one-day rise since the 2005 revaluation. But dealers fear the central bank will not go nearly as far with the fixing rate, which would likely weigh on the euro and commodity currencies.
Doubts had already emerged overnight and erased most of the euro's initial rally. On Tuesday, the euro
Near term support was seen at $1.2253, the 38.2 percent Fibonacci retracement of the rise from a 4-year low of $1.1875 on June 7 to Monday's high of $1.2490.
On the other hand, the dollar index <.DXY> was up at 85.94, holding well above support at 85.13. The index posted a bullish reversal day on Monday, suggesting more gains for the greenback in the near term.
Beijing's vow of flexibility on the yuan, which should boost purchasing power and demand in the the world's third largest economy, had initially fuelled a rally in risky assets on Monday.
But the rally ebbed with not much follow-through buying, with China's move undertaken primarily for political purposes, analysts said. Leaders of the Group of 20 leading industrialized and developing economies are to meet next week in Toronto, where global trade imbalances are expected to be a key issue.
China on Monday ruled out a one-off revaluation and said it will reform its exchange rate regime in a gradual manner. [ID:nBJC002566].
"The Chinese decision provided a welcoming short-term distraction in a market gripped by fear and anxiety, but the underlying European fiscal headaches and global growth uncertainties remain unaltered," wrote Matthew Strauss, currency strategist at RBC Capital. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Main yuan coverage [ID:nCHINATAKE] Winners and losers from a firmer yuan [ID:nTOE65K02D] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
RBC's Strauss added the euro's failure to break past resistance near $1.25 was likely to result in a period for weakness for the single currency. Against the yen, the euro was steady at 112.20, having shed about 0.2 percent on Monday.
The euro in recent months has moved with swings in risk appetite. On Monday, the 25-day rolling correlation between the euro and the S&P 500 <.SPX> was at a robust 54 percent.
The fading risk rally was also evident in stock markets.
The New Zealand
The Aussie
The New Zealand dollar was up 0.16 percent at $0.7090, with support at $0.7020 and resistance around $0.7153, the high on May 14. (Editing by Wayne Cole)