* U.S. Treasury yield spike fails to boost dollar
* Euro holds close to $1.25 mark; gains on week
* Traders prepare for non-farm payroll data
* Chinese yuan hits fresh 2 1/2 year high
* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh
By Tommy Wilkes
LONDON, Feb 2 (Reuters) - The dollar reversed earlier falls against the euro on Friday as traders took some profits ahead of U.S. non-farm payroll numbers, although its rise did little to improve a difficult week in which rising U.S. Treasury yields failed to help.
The euro zone’s economic revival and expectations of monetary tightening have made the single currency more attractive for investors, while strong global growth around the world has encouraged investors to move cash out of the dollar.
Yields on 10-year U.S. Treasuries rose to near their four-year high, with economic growth and buoyant oil prices driving up inflation expectations and central banks starting to sound more hawkish.
Rising Treasury yields are traditionally associated with a stronger dollar. But Nordea Markets currency strategist Niels Christensen said that “bond investors are selling out of U.S. Treasuries and at the same time liquidating out of their long U.S. dollar positions”.
Still, with some euro profit-taking ahead of the non-farm numbers due later on Friday, the dollar recovered marginally. Against a basket of currencies, the greenback rose 0.2 percent. Against the euro, it gained 0.2 percent on the day to $1.2490, but that still left the single currency within sight of last week’s three-year high of $1.2538.
A survey released on Thursday showed that euro zone manufacturing continued to boom last month, bolstering the view that the European Central Bank is on track to normalise monetary policy.
The euro has also benefited from ECB President Mario Draghi’s reluctance to talk down the currency, giving bulls the green light to push the euro higher.
Many strategists say the dollar’s sensitivity to domestic news currently looks weak - ING analysts called it “limited and short-lived” - as investors focus on monetary policy re-pricing opportunities elsewhere.
“Today’s U.S. labour market report poses only temporary downside risk to the cross,” ING said in a note.
Elsewhere, the dollar added to recent gains against the Japanese yen, helping it move away from a four-month low of 108.28 hit a week ago. The dollar rose 0.4 percent on the day to 109.865.
The greenback was also up 0.3 percent against sterling at $1.4224, although the pound remains on its best run since 2012.
The Chinese yuan continued its recent rise against the dollar, notching up a high of 6.2773, a 2 1/2-year high. The yuan is up 0.8 percent for the week and was last trading at these levels in August 2015.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets (Additional reporting by Lisa Twaronite in Tokyo, editing by Larry King)