* Dollar index down 0.23 pct
* Dollar down more than 1 pct vs yen (Updates prices, market activity, adds comments)
By Saqib Iqbal Ahmed
NEW YORK, Jan 10 (Reuters) - The U.S. dollar fell to a more than six-week low against the Japanese yen and weakened against a basket of major currencies on Wednesday after a report that China was ready to slow or halt its U.S. Treasury purchases.
Officials reviewing China’s foreign-exchange holdings have recommended slowing or halting purchases of U.S. government bonds, Bloomberg News reported, citing people familiar with the matter.
The dollar was down 1.13 percent at 111.37 yen, after touching 111.29 yen, its weakest since late November.
“If the reports turn out to be true and China no longer sees Treasuries as an attractive option, the repercussions could be significant as the country is one of the biggest holders of U.S. debt,” Craig Erlam, senior market analyst at OANDA in London, said in a note.
Against a basket of six major currencies, the dollar was down 0.23 percent.
“The Chinese are applying pressure to the Treasury market just as the Fed is about to step away from being the buyer of last resort,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.
“The dollar was already notably weak ahead of today, despite the fact that U.S. data remained strong and yields continued to rise,” he said.
The dollar had slumped as the Bank of Japan’s move to trim its purchases of long-dated government bonds (JGB) this week reverberated across currency markets. On Tuesday, the dollar fell 0.39 percent against the yen.
“All of last year there was this fantastic correlation between U.S. 10-year yields and dollar-yen and people put on what is known as pairs trades,” said Greg Anderson, global head of FX strategy at BMO Capital Markets in New York.
“But that correlation has broken apart fantastically over the last couple of days. All those people that would have had that trade on are stopped out,” he said.
The dollar rose against its Canadian counterpart and and Mexico’s peso after a Reuters report said Canada increasingly believes that U.S. President Donald Trump will soon announce his intention to withdraw from the North American Free Trade Agreement treaty.
The greenback was 0.65 percent higher against the loonie and up 0.47 percent against the Mexican peso.
Sterling edged lower against the dollar, as investors locked in profits after a rally and showed reluctance to push it any higher until major new catalysts emerged.
Reporting by Saqib Iqbal Ahmed; Editing by Susan Thomas and Richard Chang