April 24, 2018 / 1:35 AM / 5 months ago

FOREX-Dollar stands tall as U.S. 10-year bond yield nears 3 percent

* Dollar index rises above 91.00, sets 3-month high

* U.S. 10-year yield's rise toward 3 pct buoys dollar

By Masayuki Kitano

SINGAPORE, April 24 (Reuters) - The dollar set a three-month high against a basket of currencies on Tuesday, having gained a boost as the U.S. 10-year Treasury yield climbed toward the psychologically key 3 percent level.

The U.S. 10-year Treasury yield hit its highest in over four years at 2.998 percent on Monday, driven by worries about the growing supply of government debt and inflationary pressures from rising oil prices.

The U.S. 10-year bond yield later backed off that level a bit and stood at 2.971 percent in Tuesday's early Asian trade.

Including Monday's move, the U.S. 10-year yield surged nearly 16 basis points in four trading sessions, the biggest four-day rise since late June last year.

The rise in Treasury yields has caused U.S.-Japan and U.S.-German yield differentials to widen in the dollar's favour, leaving the yen and the euro lower.

"The U.S. dollar has put on a compelling show...as the stars align on the back of higher U.S. yields," Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore, wrote in a note.

"While it's a bit early for investors to pack in the consensus short dollar view, the weaker shorts are indeed getting pared as the U.S. dollar is showing some vigour."

Innes added that U.S. first-quarter gross domestic product data due on Friday could be key in determining whether the dollar will extend its gains further.

The dollar's index against a basket of six major currencies rose to as high as 91.054 in early Asian trade, its strongest level since Jan. 12. The dollar index last stood at 91.035, up 0.1 percent on the day.

Against the yen, the dollar rose 0.1 percent to 108.86 yen . On Monday, the dollar had surged nearly 1 percent on Monday for its biggest daily percentage rise in almost a month.

The yen, a safe haven currency that tends to rise in times of economic uncertainty but weakens when investor confidence returns, has come under pressure in recent sessions as worries over geopolitical risks and global trade tensions eased.

U.S. Treasury Secretary Steven Mnuchin said on Saturday he may travel to China, a move that could ease tensions between the world's two largest economies.

The euro eased 0.2 percent to $1.2189. It set a low of $1.21875, the lowest for the common currency since March 1.

The euro had enjoyed a strong rally until February before finding itself stuck in a trading range with the dollar after the European Central Bank cautioned investors expecting it to raise rates sooner than expected. The ECB holds its monetary policy meeting on Thursday.

The dollar also rose against emerging market currencies on Monday, with Brazil's currency hitting a nearly 1-1/2 year low and Mexico's peso falling to its weakest since early March.

Underscoring the dollar's broad strength, the Australian dollar set a four-month low of $0.7587 on Tuesday.

Reporting by Masayuki Kitano; Editing by Sam Holmes

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