By Lisa Twaronite, MarketWatch NEW YORK (MarketWatch) -- The U.S. dollar beat up on most major counterparts on Tuesday on news that China wanted to rein in bank lending and that Japan's debt rating is in jeopardy, weighing on stocks and drawing investors to the relative safe-haven of the dollar. The British pound fell after a report showed the U.K. economy barely escaped recession during the fourth quarter. The dollar index (DXY 78.60, +0.41, +0.53%) , which measures the greenback against a basket of six major currencies, was at 78.585, up from 78.188 in late New York trading on Monday. The euro fell 0.6% to $1.4065. The British pound dropped 0.7% to $1.6137 after data showing the U.K. economy escaped recession during the fourth quarter with a smaller-than-forecast 0.1% quarter-on-quarter rise. The dollar added to gains on Tuesday after the U.S. Case-Shiller home price index fell 0.2% in November compared with October on a not seasonally adjusted basis, underlining risks to the U.S. recovery. See more on home prices. Also, President Obama will propose a spending freeze for some federal departments, according to reports. "More concrete plans in this regard would be U.S. dollar-supportive, in a market environment where sovereign risk and fiscal sustainability are key concerns," strategists at RBC Capital Markets said. For more than a year, the dollar, and Japanese yen, has tended to benefit from weak economic data because it reduced the appeal of riskier assets, including stocks. That relationship has been more tenuous in recent months, as the dollar has sometimes reverted to its more traditional relationship of rising on good economic data. The dollar fetched 89.65 yen, down 0.7% from Monday. "The US dollar is firmer against most currencies as markets remain concerned about risk," strategists at Brown Brothers Harriman said. "Ongoing concerns about the impact of Chinese tightening, and word leaking out that Obama may introduce a non-security, discretionary spending freeze in the State of Union address, are contributing to dollar strength." Looking ahead, the U.S. Federal Reserve's first meeting of the year ends on Wednesday, with analysts predicting no change in the central bank's target interest rate. The focus will instead be on the economic outlook and comments about its mortgage-debt buying plans. See preview on Fed meeting. The gains began in the Asian trading session amid reports that China's central bank has singled out several large Chinese banks and required them to raise their reserve ratios for excessive lending, while also asking some not to issue new loans. Read more on China banks. Also, Standard & Poor's put a negative outlook on Japan's AA sovereign long-term credit rating, expressing concern about Japan's diminishing economic policy flexibility to deal with its growing debt levels and deflationary pressures. Read more on S&P cutting Japan rating outlook. The Bank of Japan ended its own two-day meeting Tuesday and maintained its unsecured overnight call loan rate at 0.1% as widely expected. It also kept its overall economic assessment intact. It lowered its deflation expectation for the next fiscal year that begins April, calling for a fall of 0.5%, milder than the 0.8% drop predicted in October. See full story on Bank of Japan meeting. The dollar slumped against the euro on Monday, and was mixed versus other major counterparts, as fiscally troubled Greece found strong demand for its five-year syndicated bond issue.

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