NEW YORK, May 21 (Reuters)

NEW YORK, May 21 (Reuters) - The U.S. dollar on Thursday rose from its lowest level so far this year on diminished investor risk appetite after Standard & Poor's said it could downgrade Britain's triple-A credit rating due to high debt.
Sterling dropped from a 6-1/2-month high against the dollar after the ratings agency revised its outlook on Britain to negative from stable, saying the country's debt burden would rise significantly. For more see [ID:nLAI000122].
Analysts said the news reminded markets that the global economy still faces challenging times despite recent signs that the worst of the crisis may be past. That sentiment boosted safe-haven demand for the dollar and weighed on riskier assets such as equities and commodities.
"The most obvious one was the S&P action on the UK. That was like a wake-up call for the market overall," said Ronald Simpson, managing director of global currency analysis at Action Economics in Tampa, Florida.
"That action dented the risk appetite for now, so we've seen the dollar move marginally higher as a result," he added. "The market was getting a little ahead of itself. We still have some major issues to deal with."
In early New York trading, the ICE Futures dollar index .DXY, which tracks the greenback against a basket of six currencies, rebounded to trade up 0.2 percent at 81.329 after it plumbed its lowest level of the year at 80.799 earlier in the global session.
Recent optimism about a global recovery eroded safe-haven demand for the dollar, while minutes from the Federal Reserve's latest policy meeting showing the U.S. central bank had considered buying more securities added to pressure. [ID:nN20492043]
The euro fell 0.2 percent to $1.3741 , after rising to as high as $1.3837, according to Reuters data, its highest since early January.
The dollar traded slightly lower at 94.77 yen, but stayed in range of a two-month low of 94.28 yen hit on electronic trading platform EBS earlier in the day.
UK RATINGS
The pound tumbled as much as 3 cents against the dollar following the S&P's news, although it later trimmed losses as some in the market reckoned that Britain is only one of many nations facing deep fiscal problems.
Sterling traded at $1.5641, down 0.6 percent on the day, but pulled back from the day's trough of $1.5514 hit after the S&P announcement