* Dollar index down -0.6% for the week * Euro unchanged on better than expected PMIs * Sterling hits $1.42 again after positive retail sales data LONDON, May 21 (Reuters) - The dollar hit its lowest level in four months on Friday and was set to notch a modest weekly drop as traders’ concerns about taper talk in Federal Reserve minutes faded, though a pullback in commodity prices and nervousness about virus outbreaks kept losses in check. The dollar has given back a bounce it made after a mention in minutes from the Fed’s April meeting of possible future discussions on paring back stimulus, initially viewed as an indication rate rises might come earlier than previously thought. Investors now figure that any action remains a long way off and that the path might again be clear for a resumption of April’s downtrend, as the U.S. trade and account deficits weigh. A loosening of COVID-19 restrictions helped surveys of German services activity and French business activity come in better than expected in May, although they didn’t appear to have a noticeable effect on the euro. Against the single currency the dollar was parked at $1.2211, not far above the four-month low $1.2245 it hit earlier in the week and close to testing major support around $1.2345. The dollar index was held below 90 and was last at 89.692. It hit its lowest since January 7. The index, which measures the greenback against six major currencies, is down about 0.6% for the week so far. Against the Japanese yen the dollar held at 108.74, for a weekly loss of roughly 0.5%. “All of the worry around talk of even talking about a taper, that was revealed in the Fed Minutes from earlier this week, is now apparently a thing of the past, with investors once again focused on the persistent underlying message that policy isn’t changing anytime soon,” Joel Kruger, currency strategist at LMAX Group, said. Sterling last traded 0.2% higher at $1.4221. In cryptocurrencies, a recovery from Wednesday’s crash lost some momentum. Bitcoin traded above $41,000, which is more than 30% above the week’s low point. Ether likewise lost steam and fell back to flat at $2,786. Both are on course for weekly losses deeper than 10%. Left behind in all the recent focus on inflation, tapering and future hikes has been the Japanese yen. It is near its weakest in three years at 133.02 per euro and is poised for a fifth consecutive weekly loss against the common currency. Against the dollar, the yen has slid 5% for the year to date and is the worst performing G10 currency. It has fared even worse on some crosses, shedding nearly 10% on the Canadian dollar and nearly 9% on the pound. In a note to clients, ING said rebounds of the dollar were likely to be short-lived, “unless we see a meaningful shift towards more aggressive Fed tightening...and the subsequent reversal in the USD front-end rates dynamics (currently most negative in the G10 FX space)”. Reporting by Ritvik Carvalho Additional reporting by Tom Westbrook in Singapore Our Standards: The Thomson Reuters Trust Principles.