By Chikako Mogi

TOKYO (Reuters) - Asian shares snapped a two-day losing streak and rose on Tuesday as a surprising rise in U.S. retail sales boosted sentiment, but the dollar took a breather after gaining broadly on growing optimism about the recovery in the world's largest economy.

A pause in the dollar's rise helped commodities prices stabilize, with gold gaining 1 percent to recoup losses incurred the previous session.

The dollar shed 0.3 percent against a basket of key currencies <.dxy>, after nearing this year's high of 83.494 touched last month, as the euro rose 0.3 percent to $1.3017.</.dxy>

Stability in the euro zone was evident at Italy's three-year debt auction on Monday when costs fell to their lowest since January, as investors backstopped by European Central Bank guarantees, brushed off concerns about the country's political and economic troubles.

"The dollar's climb is based on the recovery scenario for the U.S. economy, with the strong dollar denting sentiment for commodities which have been weakened by the sluggish growth in emerging countries," said Naohiro Niimura, a partner at research and consulting firm Market Risk Advisory in Tokyo.

"But the prospect for firmer U.S. growth will raise demand for commodities and lift their prices eventually," he said, also noting the normalization in financial markets as seen by falling yields in the peripheral euro zone countries such as Italy.

U.S. stocks paused overnight from last week's record high closings and European shares edged off five-year highs after renewed concerns about banks sparked profit-taking in the second best-performing sector of the past month.

U.S. retail sales unexpectedly rose in April, prompting Goldman Sachs and JPMorgan to upgrade their view on second-quarter growth and drove the benchmark 10-year Treasury yield up to a six-week high of 1.925 percent on Monday.

An optimistic outlook for the U.S. economy stirred market talk that the U.S. Federal Reserve could scale back its aggressive bond-buying program aimed at supporting growth, which has helped drive prices of risk assets higher.

MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> rose 0.3 percent, with Australian shares <.axjo> inching up 0.2 percent and South Korean shares <.ks11> climbing 1 percent.</.ks11></.axjo></.miapj0000pus>

"Renewed foreign investor buying, encouraged by U.S. retail sales data, is boosting the market today," said Cho Seong-joon, a market analyst at NH Investment & Securities, of Seoul stocks.

The Nikkei stock average <.n225> was up 0.2 percent, after rising as much as 1.7 percent on Monday to scale a fresh peak since January 2008 of 14,849.01. <.t></.t></.n225>

Japanese equities have been bolstered by the weak yen trend, which accelerated after the Bank of Japan's April 4 launch of a sweeping monetary expansion campaign aimed at breaking a 15-year deflationary cycle and putting the economy on a sustainable growth path.

"The market is short of new catalysts for now as most of the corporate earnings are out. Since we have confirmed that companies' conservative earnings forecasts for this year will be revised up, the mid-term trend should be positive," said Nobuhiko Kuramochi, strategist at Mizuho Securities.

The dollar fell 0.3 percent against the yen to 101.56, after reaching a 4-1/2-year high of 102.15 yen on Monday. The euro was up 0.1 percent against the yen at 132.18 after touching its highest since January 2010 on Monday.

Commodities have been weighed down by the dollar's rise, and sent the Australian dollar down to an 11-month low of $0.9940 hit on Monday. The Aussie was up 0.2 percent at $0.9974.

A weaker currency supported Australian shares.

Spot gold rose 1 percent to a session high of $1,444.96 an ounce as a weaker dollar helped the metal snap a three-day decline.

U.S. crude futures were up 0.3 percent at $95.41 a barrel and Brent was up 0.1 percent at $102.90.

(Additional reporting by Jungyoun Park in Seoul and Ayai Tomisawa in Tokyo; Editing by Jacqueline Wong)