* Dollar index holds steady, stays above recent 7-week low
* Investors keeping eye on developments from G20 in Sydney
* Euro stays below 7-week high vs dollar
By Lisa Twaronite and Masayuki Kitano
TOKYO/SINGAPORE, Feb 21 (Reuters) - The dollar held steady versus a basket of currencies on Friday, supported by upbeat data that underpinned hopes for continued improvement in the U.S. economy.
The number of Americans filing new claims for unemployment benefits fell last week, suggesting the labour market continues to improve steadily despite recent severe cold weather.
Financial data firm Markit said U.S. manufacturing activity picked up pace to its fastest growth in nearly four years, although a separate manufacturing survey showed activity in the mid-Atlantic region fell to the lowest in a year.
Investors awaited existing home sales data due later on Friday, as well as consumer confidence figures set to be released on Tuesday, for more evidence backing the U.S. Federal Reserve’s stance that it will continue to wind down its asset-buying stimulus as the economy improves overall.
The dollar held steady at 80.320 against a basket of major currencies. The dollar index has regained some footing after touching a trough of 79.927 on Wednesday, its lowest level since late December.
Against the yen, the dollar edged up 0.2 percent to 102.52 yen, moving away from Thursday’s intraday low of 101.67 yen.
“While dollar/yen is struggling to rally, if investors continue to discount weaker U.S. data, the currency pair could crack above 103 on the first sign of strength,” BK Asset Management managing director Kathy Lien said in a note to clients.
In the meantime, she said, currency traders should keep an eye on Treasuries and equities.
“If yields continue to rise and stocks extend higher, dollar/yen could hit its monthly high,” she said.
In the near term, the dollar may struggle to rise past the 102.75 to 102.80 yen area, said a trader for a European bank in Tokyo, adding that the dollar faces resistance on the daily Ichimoku chart at 102.80 yen, where the “kijun sen” now lies.
The “kijun sen”, or base line, can act as resistance or support, depending on its location.
Market participants are also watching for developments from this weekend’s Group of 20 meeting of finance ministers and central bank chiefs in Sydney, at which global growth and recent turmoil in emerging markets are expected to be in focus.
The G20 needs to discuss the impact of the Fed’s stimulus withdrawal on emerging markets, a top Russian central banker said on Friday.
Still, the Fed’s focus is likely to remain on U.S. economic conditions rather than the implications of its stimulus tapering on emerging markets, said Sim Moh Siong, FX strategist for Bank of Singapore.
“There could be a discussion but I don’t think it changes the crux of the issue,” he said.
The minutes of the Fed’s January meeting and recent comments from Fed officials suggest that they are willing to look past the weakness in some of the recent U.S. data and focus more on the medium-term picture, Sim added.
“I think the overall tapering discussion, at least from the Fed’s standpoint, is that there is a high hurdle to deviating from the course,” he said.
The euro held steady at about $1.3718, staying below Wednesday’s high of about $1.3773, which was its highest since Jan. 2.
Some disappointing euro zone data and surveys had weighed on the euro on Thursday. Markit’s Composite Purchasing Managers’ Index for the euro zone dipped to 52.7 from January’s 31-month high of 52.9, missing forecasts for a rise to 53.1.
A much softer-than-expected reading of French inflation heightened concerns about the risks of deflation in the euro zone, while French manufacturing data fell short of forecasts.