FOREX-Aussie weakens as yuan slide deepens
* China spot yuan drops below guidance rate first time since 2012
* Aussie dollar dips 0.3 percent
* Dollar looking to data for clues on U.S. recovery
* Wait for inflation data hampers any push higher for euro
LONDON, Feb 25 (Reuters) - The Australian dollar fell around a third of a percent on Tuesday, handing back overnight gains as a fall in China's yuan deepened, reflecting concern over growth and moves by the People's Bank of China to prod the currency lower.
The Aussie is the nearest developed world currency to a proxy for growth in China, which takes much Australia's commodities output.
The fall still left the Aussie around $0.9011, more than 2 percent above lows against the U.S. dollar hit late last month. Other major currencies traded within recent ranges.
"It's hard to know what the knock-on effect of the yuan drop will be, because the market is unsure as to what's the driver - is it the PBOC curbing speculation, increased political tensions between the U.S. and China, or something else?" said Vincent Crimmins, head of FX strategy and trading at the Bank of Ireland in Dublin.
"For now it appears to be relatively contained, but the Aussie would be the likely underperformer should it materialise into something of significance, with the dollar and the yen the likely outperformers."
Daragh Maher, a strategist at Asia-focused HSBC, played down the prospect of a deeper sell-off of the Aussie linked to the yuan move, at least for now.
But he said western players, for whom the steady rise of the yuan has been one of the few certainties in global foreign exchange markets in recent years, may have to reassess.
After falling another half a percent overnight, offshore rates for the yuan found some support around 6.1270 to the dollar. The spot yuan rate earlier fell below the official mid-point rate for the first time since September 2012, amid speculation the central bank may have intervened in preparation for a doubling of its trading band.
"Overnight the Aussie looked to be leading Asia against a weaker dollar, once that began to reverse the Aussie came back," Maher said.
"But I don't think for now this is any kind of a capital outflow story. A sharp adjustment of the yuan spot rate is happening but I don't think it represents a fundamental reassessment of how China is doing."
After a batch of weaker U.S. data largely blamed on the weather, another reason for stalemate on major currencies is the prospect of a first estimate of euro zone February inflation on Friday.
Recent months' numbers have seen price growth sliding below 1 percent, strengthening the case for more action by the European Central Bank to provoke growth.
Many players who began the year believing more ECB easing and the U.S. Federal Reserve's reining in of its own stimulus would gave the dollar a lift are reconsidering.
But few seem prepared to bet on a stronger euro ahead of the inflation number, forecast to inch down to 0.7 percent.
"We remain skewed towards a stronger euro," said Paul Robson, senior desk strategist at RBS in London.
"The Fed continues to add to its balance sheet, even if it is doing so at a slower rate, while the ECB's is still contracting. You might get some drop off in the euro if the ECB takes more action, but if you look at the correlation of exchange rates to interest rates over the past 18 months it hasn't been that close."
The dollar index stood at 80.114, nearly flat on the day and near the middle of its range in the past week. The dollar edged down about 0.1 percent to 102.37 yen. The euro was up 0.1 percent at $1.3750.
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