On Monday, the dollar sold off slightly as investors took advantage of a holiday-shortened week to square positions and book profits on a U.S. currency that has logged nearly two weeks of extended gains.

In that span, the dollar index has gained nearly 5 percent on expectations U.S. President-elect Donald Trump would boost fiscal spending, in turn elevating inflation and lifting interest rates.

Data on Tuesday showed U.S. home resales rose two percent in October to an annual rate of 5.6 million units, the highest level in more than 9-1/2 years.

That pushed the dollar to session highs against the yen and drove a turnaround in the dollar index.

"The greenback should continue to benefit from mounting expectations for inflation and a potentially faster pace of Fed rate hikes," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

Scotiabank's Economics group said the Fed will continue on a tightening path that will lift the upper end of the Fed funds rate target range to 2 percent by the end of 2018.

The bank expects the euro to close the year at $1.05 against the dollar and at $1.10 in 2017, which was lower than its original forecast of $1.12.

Scoatiabank said it revised its euro/dollar forecast next year to reflect the likelihood of additional ECB easing measures as well as political event risk in the euro zone in the coming months such as December's Italian referendum on political reforms and several national elections across Europe.

In late trading, the dollar rose 0.4 percent against the yen to 111.18 yen . On Monday, the dollar had hit a six-month high versus the Japanese currency.

An earthquake of magnitude 7.4 and a subsequent tsunami warning in northern Japan prompted knee-jerk selling of the dollar for the safe-haven yen overnight. The 2011 earthquake in Japan had resulted in a nearly 7 percent yen appreciation for the first few days afterwards on the expectation of increased repatriation flows.

On Monday, the greenback had set a near six-month high of 111.36 yen, which amounted to a gain of 10 percent from its Nov. 9 trough near 101 yen.

The dollar index was little changed on the day at 101.07 <.DXY> as the euro inched lower against the dollar to $1.0622. The shared currency was not far from a nearly one-year low against the dollar hit last week.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Sandra Maler)

By Gertrude Chavez-Dreyfuss