* Euro bounces off 2-1/2 month lows vs USD, still on track for weekly fall
* Drop in benchmark U.S. yields seen undermining dollar
* No major data out of Asia on Friday
By Ian Chua
SYDNEY, May 16 The euro was back in familiar territory against the dollar early on Friday, having staged a surprisingly strong rebound from a 2-1/2 month trough as investors booked profits on bearish positions ahead of the weekend.
The common currency stood at $1.3714 after closing nearly flat in New York. It had fallen as far as $1.3648 in response to data showing the euro zone grew much less than expected at the start of the year.
"EUR/USD rebounded from the lows thanks to the sharp drop in U.S. yields but we suspect that expectations of ECB easing will keep the euro trading with a bearish bias," analysts at BNP Paribas wrote in a note to clients.
Indeed, the euro has fallen more than 2 percent since May 8 when European Central Bank (ECB) President Mario Draghi convinced markets that the bank was ready to inject fresh stimulus next month.
The disappointing growth figures on Thursday only served to fuel those dovish expectations.
The euro also lost ground on the yen, reaching a 2-1/2 month trough of 138.97. It last stood at 139.25.
Traders said a big fall in U.S. benchmark Treasury yields to six-month lows had undermined the appeal of the U.S. dollar overnight.
That saw the dollar index retreat to 80.002 from a six-week peak of 80.338. Against the yen, the greenback plumbed a two-month low of 101.31 before steadying at 101.54.
Yet, the dollar managed to eke out slim gains on its Australian counterpart, which slipped to $0.9359 from a one-month high of $0.9410 set mid-week.
The drop in U.S. yields caught some by surprise. Traders pointed to safety flows stemming from a selloff in Greek bonds that halted a rally in peripheral euro zone debt.
Markets showed no reaction to a speech by Federal Reserve Chair Janet Yellen, who said the United States still has further to go before achieving a healthy economy. Yellen made no comment on the outlook for policy.
There are no major economic releases in Asia on Friday, raising the prospect of a subdued end to what has been a second negative week for the euro. (Editing by Shri Navaratnam)