* Dollar trades near one-month low vs basket of currencies
* Weaker U.S. data, doubts on Fed tapering weigh on dollar
* Yen extends gains vs dollar, likely to be short-lived
* Euro zone PMIs on Wednesday in focus
By Anooja Debnath
LONDON, July 23 (Reuters) - The dollar traded near a one-month low against a basket of currencies on Tuesday on expectations Federal Reserve monetary policy will stay loose for some time.
The dollar index was flat at 82.235. Weak U.S. housing data in the previous session had pushed it to a trough of 82.047, its lowest since June 21.
“The message has sunk in over the last couple of weeks that the Fed is still on a very accommodative monetary policy path,” said Jane Foley, senior currency strategist at Rabobank.
“Yesterday we had some weaker U.S. housing data that reinforced that message,” she said, adding markets were still betting the dollar would strengthen in the longer term.
Benchmark U.S. 10-year Treasury yields, which have shared a robust correlation with the dollar, have slipped in recent weeks and last stood at 2.4935 percent, off the 2.755 percent hit on July 8, which was its highest since August 2011.
Yields have fallen as top Fed officials have stressed that the timing of any reduction in the central bank’s $85 billion monthly asset purchases would depend on economic data.
Losses against the yen were a major drag on the dollar. The yen extended gains after Prime Minister Shinzo Abe’s decisive victory in elections last weekend.
Before the elections, speculators had positioned for a drop in the yen and, with those short-term targets met, many booked profits, causing it to rise.
The dollar was down 0.1 percent at 99.51 yen, having earlier hit a one-week low of 99.14 yen.
The Japanese government raised its view on the economy for a third straight month and said deflation was abating as a result of monetary easing and generous spending.
But analysts said the yen’s rise would be short-lived as Abe’s win would pave the way for pro-growth fiscal policies and structural reforms and for further Bank of Japan monetary easing, all of which would drive the yen lower.
The dollar is up about 15 percent versus the yen this year.
The downtrend in dollar/yen has likely bottomed out according to trends in the options market.
Analysts said that with the onset of the holiday season, volumes have been low and volatility has plunged, which could lead to most currencies trading in ranges.
The euro was flat at $1.3187 but close to Monday’s one-month high of $1.32185.
Markets will focus on flash Purchasing Managers’ Index data on Wednesday as despite the euro’s recent resilience, worries about euro zone economies are coming back into focus.
“We expect the euro to underperform, even in an environment of a broader dollar setback,” analysts at Morgan Stanley said, adding they would “use rebounds to establish short positions.”