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TOKYO, May 25 (Reuters) The dollar slipped on Thursday after staging a recovery against the euro and the yen the previous session on upbeat housing data that tilted expectations toward the Federal Reserve raising interest rates in June.

The unexpected 4.9 percent gain in April new home sales helped soothe worries about a sharp slowdown in the once red-hot property market and suggested the Fed may lift its funds rate for a 17th straight time to 5.25 percent at its next meeting.

Another increase would help the dollar maintain its yield advantage over the euro and yen, even as both the European Central Bank is set to press ahead with more rate rises and the Bank of Japan prepares to start doing so in the next few months.

The dollar has been battered by speculation Washington wants a weaker currency to help shrink the giant U.S. trade deficit, especially after the Group of Seven powers explicitly called last month for emerging Asian countries to allow currencies to appreciate.

But after tumbling to one-year lows against the euro and the pound and eight-month lows versus the yen, the dollar has bounced back as investors have cut their big bets against the U.S. currency as volatility has spiked up across asset markets.

''An unexpected gain in home sales provided one catalyst for the dollar to recover its losses. But fundamentals have not been the key driver of recent dynamics in FX,'' said currency strategists at Morgan Stanley in a note to clients.

The dollar also rose after reports on Tuesday of person-to-person transmission of bird flu in Indonesia.

But the World Health Organisation said it had no immediate plans to raise its bird flu alter. And the head of the U.S.

Centers for Disease Control and Prevention said the virus had not mutated substantially.

In early Tokyo trade, the dollar dipped to 112.65 yen from near 112.95 yen in late New York trade.

Traders said that Japanese exporters would likely be eager dollar sellers to convert overseas sales back to yen around current levels.

The euro was in sight of a one-month high against the yen, hovering near 144 yen, little changed on the day.

The single currency edged up to $1.2775 from near $1.2750, off the one-year peak of $1.2972 struck on electronic trading platform EBS on May 15.

A report on Thursday showed Japan's trade surplus shrank by a surprisingly big 31.8 percent in April from a year earlier to 646.2 billion yen ($5.73 billion), but the figures had little impact on the yen.

REUTERS DH RN0647