FOREX-Dollar near 3-1/2 month high bolstered by rising US bond yields

* Dollar index steadies near peak hit on Wednesday

* U.S. 10-year Treasury yield stays above 3 percent

* Investors focus on ECB meeting

By Masayuki Kitano

SINGAPORE, April 26 (Reuters) - The dollar traded near a 3-1/2 month high against a basket of currencies on Thursday, bolstered by higher U.S. Treasury yields, led by the 10-year benchmark breaching the 3 percent threshold this week for the first time in four years.

The 10-year U.S. Treasury yield set a fresh four-year high of 3.035 percent on Wednesday, driven by worries about the growing supply of government debt and inflationary pressures from rising oil prices.

The recent jump in U.S. bond yields has caused U.S.-Japan and U.S.-German yield differentials to widen further in the dollar’s favour, leaving the yen and the euro lower.

In Asian trading on Thursday, the 10-year Treasury yield last stood at 3.022 percent.

The dollar’s index against a basket of six major currencies was at 91.181, having risen to a high of 91.261 on Wednesday, its strongest level since Jan. 12.

The dollar index has advanced more than 0.9 percent so far this week, putting it on track for its biggest weekly gain in more than two months.

“Unless there is a very unlikely massive meltdown in U.S. equity markets, it is doubtful the Fed will waver on a June rate hike,” Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore wrote in a note.

“With equity market sentiment holding firm in the face of rising bond yields, the almighty dollar could move through G-10 currency market like a wrecking ball,” Innes added.

Wall Street limped into positive territory on Wednesday on optimism over a spate of upbeat earnings, although that was nearly offset by jitters over rising U.S. bond yields and corporate costs.

The euro edged up 0.1 percent to $1.2177, but was still within sight of a near two-month low of $1.2160 set on Wednesday.

The common currency has support on technical charts at around $1.2155, a low touched on March 1. A drop below that level would take the euro to its lowest since Jan. 12.

The near-term focus is on the European Central Bank’s rates review due later on Thursday.

The ECB is set to keep policy unchanged on Thursday, playing down worries over recent softness in the euro zone economy and leaving the door open to ending its lavish bond purchase scheme by the close of the year.

Against the yen, the dollar eased 0.1 percent to 109.38 yen . Earlier on Thursday, the U.S. currency touched a 2-1/2 month high of 109.49 yen.

The dollar has gained nearly 2.9 percent against the yen so far in April, putting it on track for its biggest monthly gain since November 2016. (Reporting by Masayuki Kitano Editing by Shri Navaratnam)

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