FOREX-Dollar index steady near 4-wk high; upbeat data helps

Fri Aug 30, 2013 3:37am EDT

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* Dollar index hovers near Thursday's 4-week high

* U.S. data later in the day could aid dollar

* Yen supported by Japan exporter flows, soft Nikkei

By Anirban Nag

LONDON, Aug 30 (Reuters) - The dollar held steady near four-week highs versus a basket of currencies on Friday, underpinned by expectations that upbeat U.S. data would prompt the Federal Reserve to start withdrawing stimulus next month.

Investors were focused on economic data and interest rate differentials as jitters about Syria subsided after the British parliament rejected a motion supporting military action.

That was seen as a setback to Western governments looking to punish President Bashar al-Assad for his alleged use of chemical weapons against civilians.

The interest rate-sensitive two-year U.S. Treasury yield traded at its highest in nearly two months at 0.3987 percent while the 10-year yield climbed to 2.78 percent, widening the gap between comparable German bund yields and lending support to the dollar.

The dollar index was at 81.974, not far from a four-week high of 82.067 struck on Thursday after better than expected reading of second quarter gross domestic product data and a drop in jobless claims bolstered the case for the Fed to begin winding down stimulus next month.

On Friday, U.S. personal consumption expenditure (PCE) data for July, the August Chicago Purchasing Managers' Index (PMI) survey and University of Michigan confidence will be the focus.

"U.S. data like rising core PCE deflator and Chicago PMI could come in on the stronger side," said Chris Turner, head of FX strategy at ING. "We prefer to back the dollar here and look for the index to push to 82.50/70."

The euro ticked 0.1 percent down to $1.3227, not far from a two-week low of $1.3219 hit on Thursday.

Investors will be wary of buying the euro before next week's European Central Bank interest rate policy meet. ECB policymakers are likely to say they will keep rates low for sometime as an economic recovery sets in slowly.

The dollar, though, eased 0.4 percent versus the yen to 97.95 yen, off an intraday high of 98.48 yen. Traders said dollar-selling by Japanese exporters at the month-end helped the yen.

The yen, which has been locked in an inverse correlation with Tokyo shares for months, also gained some support as the benchmark Nikkei share average fell 0.5 percent.

The yen's rise was limited, however, as safe-haven bids ebbed as emerging Asian currencies such as the Indian rupee and Indonesian rupiah regained a bit of calm after a sell-off earlier in the week.

"Things have settled down compared to the situation we saw before, in which Asian currencies were sold off," said a trader for a Japanese bank in Singapore.

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