FOREX-Dollar keeps balance as euro, Aussie checked
* Dollar steady after traders cover short positions
* Higher-yielders down after profit-taking
* Euro stabilises after biggest fall since early August
TOKYO, Oct 27 (Reuters) - The dollar kept its footing on Tuesday after sharp gains the previous day, but made little progress higher as investor selling of stretched higher-yielding currencies and the euro paused.
The euro had its steepest drop since early August on Monday, falling nearly 1 percent, and the dollar index posted its best daily gain since September as investors unwound short dollar positions after a sharp fall in stocks and commodities.
Traders and analysts said a rise in U.S. Treasury yields was also supporting the greenback. The 10-year note yield US10YT=RR rose to its highest level in two months the previous day as the market fretted about a record debt sale this week and about when the Federal Reserve might start reversing its easy policy. [US/]
Stock markets around Asia were showing red after falls of 1 percent on Wall Street and commodity-linked currencies such as the Australian dollar, which has soared to its highest since August 2008 this month, were on the back foot.
"A corrective move in equity markets and upward pressure on U.S. yields are bad for commodity currencies and good for the dollar," said Masafumi Yamamoto, chief FX strategist Japan at Barclays Capital in Tokyo.
The euro EUR= was steady from late U.S. levels at $1.4864 but well down from a 14-month peak of $1.5064 hit on Monday after an opinion article from China suggested the Asian giant should lift the share of the euro and yen in its foreign exchange reserves. [ID:nPEK275970]
Traders expected chart support for the euro at $1.4850 and $1.4830, with a break of the latter opening the way to $1.4675.
The dollar has been a favoured trade to sell against higher-yielding currencies this year, with the prospect of low U.S. rates for a prolonged period undermining it.
Data late last week showed currency speculators increased their bets against the dollar in the week to Oct. 20 with the value of net short positions rising to $18.65 billion from $17.99 billion a week earlier. [IMM/FX].
That heavy short positioning made investors hesitate to sell the dollar further, analysts said, creating conditions for a pullback.
"The correction in the euro and the Aussie were long due given the stretched long positions," said Anthony Gray, head of the risk solutions department at Travelex in Sydney.
The dollar index .DXY, a measure of the greenback's performance against six major currencies, was steady on the day at 76.038, above a 14-month low of 74.94 set last week. Continued...
