TOKYO, Japan -- The dollar slipped against the yen on Tuesday, paring sharp gains made the previous day on expectations that a planned US stimulus package would help revive the faltering economy.

The US currency hit a nearly one-month high against the yen on Monday as investors cheered US President-elect Barack Obama's plans to propose up to $310 billion in tax cuts as part of a massive economic stimulus package.

But the dollar faced selling pressure as investors were hesitant to build dollar long positions further while the package remains in the planning stages.

"There are expectations for the new administration's economic measures such as possible big tax cuts, and this may underpin the dollar in the near term," said Yuji Saito, head of the FX sales department at Societe Generale.

"But the economic package has not yet been endorsed, so investors are cautious about buying the dollar aggressively," he said.

The dollar fell 0.4 percent from late New York trade on Monday to 93.08 yen. The US currency had risen as high as 93.59 yen in US trade, its highest since early December.

The euro, meanwhile, faced selling pressure on a growing view that the European Central Bank will keep lowering interest rates, which would reduce the interest rate gap between the euro zone and the United States.

"Factors such as data showing weakening inflation in Italy and Spain and recent remarks by ECB vice president (Lucas) Papademos have raised pressure on the ECB to cut rates, denting the euro," said Societe Generale's Saito.

The euro declined 0.2 percent to $1.3612 after falling as low as $1.3546 on Monday, its lowest since mid-December.

Against the yen, the euro dropped 0.5 percent to 126.68 yen.

Data on Monday showed that Spanish inflation slowed to a decade low and Italy's annual inflation slowed to a 14-month trough.

ECB vice president Lucas Papademos said Sunday that more rate cuts may be warranted to shield the euro zone from recession.

Investors were looking ahead to US economic indicators including the Institute for Supply Management's non-manufacturing index for December and housing market data for November later on Tuesday. The US Federal Reserve will also release the minutes from its December meeting.