(Updates prices, analyst comments)
* Dollar gains against euro, yen
* Iraq fighting underpins safety bid for dollar
* Yen falls as traders eye more BoJ stimulus
By Sam Forgione
NEW YORK, June 13 The dollar edged higher against a basket of major currencies on Friday after violence in Iraq triggered a safety bid for the U.S. currency, while a slight rise in U.S. bond yields underpinned the move.
Escalating insurgent conflict in Iraq resulted in a cautious mood, while renewed focus on the potential for more monetary stimulus in Japan and an uptick in U.S. Treasury yields also drove demand for the dollar.
"There may be a perception that the U.S. has less exposure to specific Middle East oil supply than perhaps Europe or Asia," Shahab Jalinoos, currency strategist at UBS in Stamford, Connecticut, said of the dollar's slight gains.
Traders said violence in the second-largest OPEC producer has raised concerns of a sustained period of higher oil prices. They dismissed, meanwhile, data showing slightly weaker-than-expected U.S. consumer sentiment in June.
The dollar also advanced against the Japanese yen after traders reconsidered the potential for more monetary stimulus from the Bank of Japan. The central bank decided to keep monetary policy steady, but analysts said the potential for weaker economic growth in the second quarter could trigger more easing.
"The market has a belief that the Bank of Japan could still come through with more monetary policy easing," said Jalinoos.
The euro, which has weakened since the European Central Bank's decision last Thursday to cut rates to record lows, edged lower against the dollar. Analysts said the ECB is likely to implement more monetary easing, while the U.S. Federal Reserve is moving toward tightening monetary policy.
"The only thing that's weighing on the euro is the promise to keep rates low for much longer than what the Fed is currently promising," said Axel Merk, president and chief investment officer of Palo Alto, California-based Merk Investments. The Fed's next policy meeting is next Tuesday and Wednesday, June 17-18.
The U.S. dollar index, which measures the dollar against a basket of six major currencies, was last up 0.04 percent at 80.606. The euro was last down 0.08 percent against the dollar at $1.354. The dollar was last up 0.27 percent against the yen at 101.985.
The preference for safety weighed on the New Zealand dollar , which was last down 0.22 percent at $0.8667 after having rallied to a near one-month high on Thursday. Sterling, meanwhile, extended gains after the Bank of England hinted on Thursday that interest rates could rise this year.
Merk said traders took some profits in the New Zealand dollar but were reluctant to take big positions in other currencies ahead of the weekend, partly in response to the conflict in Iraq.
Benchmark 10-year U.S. Treasury notes were last down 4/32 in price to yield 2.6 percent, pressured slightly by a rise in UK gilts yields and on expectations of an earlier-than-expected Fed rate hike. (Reporting by Sam Forgione; Editing by Nick Zieminski and Dan Grebler)