April 25, 2018 / 3:22 AM / 5 months ago

FOREX-Dollar edges up as US yields poke above 3 percent to 4-year highs

* Dollar index edges up towards 4-month highs

* 10-yr US yield pokes above 3 pct for first time since early 2014

* Widening yield spreads seen supporting dollar long term

* Kiwi extends drop, at its lowest since early January (Updates throughout)

By Shinichi Saoshiro

TOKYO, April 25 (Reuters) - The dollar inched up on Wednesday, approaching its recent four-month high as the U.S. 10-year bond yield poked above 3 percent to hit its highest level since early 2014.

The dollar index against a basket of six major currencies rose 0.1 percent to 90.844. It had climbed overnight to 91.016, highest since Jan. 12, before a slide in Wall Street stocks tempered investor risk appetite and slowed the greenback's rally against its peers, notably the yen.

The greenback had risen without pause through much of the past week as U.S.-China trade conflict woes receded and allowed the market to turn its attention back to dollar-supportive fundamentals, notably the surge by U.S. yields.

"Revived expectations that the U.S. economy would perform well thanks to tax cuts and increased fiscal spending are supporting the dollar," said Shin Kadota, senior strategist at Barclays in Tokyo.

"Yields rose and equities slipped before but the situation is a little different, as expectations towards the U.S. economy are now stronger," Kadota said.

Tuesday's data on U.S. consumer confidence and new home sales, both stronger in April, bolstered the case that the world's biggest economy will continue to grow in the coming quarters.

The U.S. currency was 0.1 percent higher at 108.900 yen . It pulled back from a 2-1/2-month high of 109.200 set the previous day when the S&P 500 and the Dow posted their biggest declines since April 6.

While the weakening by equities was supportive for the yen, often sought when stocks fall due to its perceived safe-haven status, analysts said the dollar was still likely headed for further gains in the longer-term.

"At first glance, the situation is similar to February, when U.S. yields rose sharply and equities tumbled. But the difference this time is that the response by equities is more measured, and yen demand stemming from 'risk off' is not nearly as strong," said Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo.

"The market's attention is firmly back on interest rate differentials and this is likely to keep supporting the dollar going forward."

The spreads between U.S. yields and those of its European and Japanese counterparts have widened significantly amid diverging monetary policy expectations.

This week the gap between U.S. and German 10-year government bond yields has hit its widest in 29 years and the U.S.-Japanese 10-year yield spread reached its broadest in nearly 11 years.

The 10-year Treasury yield extended its overnight rise and touched the four-year peak of 3.009 percent, reflecting the durability of the U.S. economic expansion. Accelerating inflation and concerns about increasing debt supply have also driven yields higher.

Wall Street dropped sharply on Tuesday as warnings by bellwether companies of higher costs stemming from the surge in yields reverberated.

The pound was effectively flat at $1.3981. It plumbed a one-month low of $1.3919 on Tuesday before rebounding 0.3 percent, seen to have been supported in part by news about a possible takeover of British pharmaceutical company Shire Plc by Japanese drugmaker Takeda Pharmaceutical Co.

The Australian dollar shed 0.2 percent to $0.7586 and in close reach of a four-month trough of $0.7576 plumbed the previous day.

The New Zealand dollar extended losses and dipped to $0.7102 , its weakest since Jan. 4.

The kiwi, on track for its seventh session of losses, has slumped 2 percent this month.

The currency has faced pressure from a resurgent dollar and also by increasing expectations that the Reserve Bank of New Zealand would hold off from raising rates through 2018 after data last week showed the country's inflation nearing the bottom of the central bank's target. (Reporting by Shinichi Saoshiro Editing by Sam Holmes)

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