* Dollar rises as euro slumps on weak German retail sales data * Speculators still hold large dollar short positions * A$ pares gains after RBA expands bond purchase * Graphic: World FX rates tmsnrt.rs/2RBWI5E TOKYO, Feb 2 (Reuters) - The dollar hovered near a seven-week high on Tuesday, benefiting from a euro selloff overnight after coronavirus lockdowns choked consumer spending in Germany, and on short-covering in the over-crowded dollar-selling positions. The euro sank the most in 2-1/2 weeks on Monday after data showed retail sales in Europe’s biggest economy plunged by more than forecast in December, with the continent still struggling with vaccine rollouts. “When people think about selling euros, invariably you get some buying of dollars, because the euro-dollar exchange rate is easily the most liquid in the world,” said Commonwealth Bank of Australia currency analyst Joseph Capurso. ADVERTISEMENT A buy back into the U.S. currency was long overdue, some analysts said, with speculators’ net dollar selling near a 10-year peak. Speculators have bet on a fall in the safe-haven U.S. dollar as the Biden administration’s proposed 1.9 trillion stimulus has encouraged investors to put money in riskier assets, even as a group of Republican senators visited the White House to discuss a $618 billion alternative plan. “Some hedge funds may be forced to unwind their dollar short positions after they got burned by recent short squeeze in some U.S. shares,” said Yukio Ishizuki, senior strategist at Daiwa Securities. On the whole, global markets remain wary, with institutional investors trying to get to grips with the retail trading frenzy that boosted GameStop Corp and other so-called meme stocks in recent sessions despite no change in their fundamentals. The dollar index eased a touch by 0.1% to 90.87 amid further gains for Asian stocks but stayed not far from its overnight high of 91.063, its highest since Dec. 10. The euro edged up 0.2% to $1.20805 after dropping 0.7% on Monday, the most since Jan. 15. Against the yen, the dollar briefly crossed 105 yen for the first time since mid-November and held firm at 104.875 yen . ADVERTISEMENT Many see the dollar’s rebound since early last month as a correction after its relentless decline -- the dollar index lost almost 7% in 2020 -- on expectations of a global pandemic recovery amid massive fiscal spending and continued ultra-easy monetary policy. Yet some think the dollar’s new found firmness could reflect a retreat of the bearish sentiment on the currency. “U.S. interest rates are perhaps on the rise because of the fiscal stimulus and the fact that U.S. economy is holding up well,” said Moh Siong Sim, currency analyst at Bank of Singapore. “The weak dollar trend has also stalled, and the drift down in dollar/yen has been part of that trend and it has lost a bit of momentum.” Elsewhere, the Australian dollar pared gains after the country’s central bank said it will extend its quantitative easing programme to buy additional $100 billion of bonds, a decision that many market players thought could wait until next month. The Aussie last stood at $0.7625, almost flat on the day and off the day’s high of $0.7662. Additional reporting by Tom Westbrook in Singapore; Editing by Shri Navaratnam & Simon Cameron-Moore