Dollar holds broad gains, all eyes on China data

SYDNEY (Reuters) - The U.S. dollar was firm near a 4- month high on a basket a currencies on Thursday after the euro led a rout of risk trades, though commodity currencies could get a lift from a slew of Chinese data later in the session.

China has hogged the limelight this week as fears that it will tighten credit and monetary policy drove investors to sell currencies leveraged to growth, like the Australian, New Zealand and Canadian dollars.

The Asian powerhouse is due to report fourth-quarter gross domestic product on Thursday and median forecasts are for rapid growth of 10.9 percent. It also reports consumer prices, industrial production and retail sales.

All in all, a set of robust numbers could lend support commodity currencies. But concerns that China will move to tighten lending to head off bubbles may limit any gains.

"The focus is squarely on the year-end run of Chinese data, particularly with official efforts to tap the brakes," said David Watt, senior currency strategist at RBC Capital.

"China's formal and seemingly informal efforts to restrain credit expansion have rattled markets, cutting the legs from beneath the commodity currencies."

The dollar index .DXY was up, not far from its overnight high of 78.45. If it breaks past that level, the next target is 78.699, its September 4 high.

The euro stabilized at $1.4105, having shed nearly 1.4 percent on Wednesday when it fell to a five-month low of $1.4078. It remained vulnerable to a further sell-off as worries about Greece continued and Greek government bond spreads widened.

The single currency is down 1.5 percent this year against the dollar after falling 2.2 percent in the last three months of 2009. Analysts say worries about the finances of the euro zone's weakest economies are a proving to be a major drag.

Exacerbating its recent fall, was a wave of option barriers and stop-loss selling triggered on Wednesday after it fell past $1.4250.

While resistance for the euro now lurks at $1.4220, the risk remains of a test of $1.3745 which represents 61.8 percent of its move from $1.2880/1.5145.

The dollar inched up on the yen, trading at 91.23 yen, following Tuesday's bullish reversal day from the key 90.35 yen support area. Still, traders say, a break above the 92.00/05 yen area is necessary to improve the tone for the U.S. dollar.

The euro was on the defensive on the yen, hovering near one-month lows, at 128.68 yen. It lost more than 1.2 percent on Wednesday with traders saying the pair was quickly approaching its critical support around the 128/127 yen zone.

Meanwhile, the New Zealand dollar edged up from lows, after having been the underperformer in the previous session, on better than expected retail sales data. [nSGE60J03G].

That also helped the Aussie bounce to $0.9108, from around $0.9083 late on Wednesday in New York. It shed nearly 1.8 percent on Wednesday as fears of tightening in China led to a sell-off in high-yielding currencies.

(Editing by Wayne Cole)