FOREX-Dollar drifts as U.S. yields stay low, rate hike expectations ebb

* Dollar index treads water after slipping from 1-month highs

* Dollar out of traction with U.S. yields stuck at low altitude

* Pound buoyant on mounting expectations for a BoE rate hike

* Aussie bounces as oil prices settle (Adds details and quotes, updates prices)

By Shinichi Saoshiro

TOKYO, June 26 (Reuters) - The dollar drifted on Monday as U.S. Treasury yields stayed low amid fading expectations that the Federal Reserve will hike interest rates again later this year.

The dollar index versus a basket of six major currencies was little changed at 97.269 after falling 0.4 percent on Friday.

The index had climbed to a one-month peak of 97.871 earlier last week, supported by expectations that the Fed, fresh from a mid-June rate hike, would tighten policy again as early as September.

But such expectations ebbed over the course of a week, with investors doubtful of another rate increase this year as U.S. indicators have on balance fallen short of forecasts.

“The main reason behind the weakness of the dollar, which has lost its upward momentum since the Fed rate hike, is U.S. yields stuck at low altitude,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

“Yields appear to better reflect U.S. fundamentals relative to equities, and in focus this week are political developments and the various indicators due for release.”

U.S. data due this week include the June consumer confidence indicator, pending home sales, crude oil inventories, revised first quarter GDP and the PCE price index.

On the political front, the U.S. Senate hopes to vote on a healthcare bill this week to replace Obamacare. But with as many as five Republican senators oppositing the bill, getting a vote by the end of this week could be difficult.

The Trump administration will find it hard to follow through with tax cuts and fiscal stimulus steps, seen as dollar-supportive factors, without passing the healthcare bill first.

“The market has essentially given up on a number of key U.S. plans passing through Congress within the year, so any delays to the healthcare vote should not come as a surprise,” said Koji Fukaya, president of FPG Securities in Tokyo.

“But there is room for a positive surprise for the dollar if the healthcare bill actually goes forward.”

Yields on the benchmark 10-year Treasury note rose briefly after the Fed tightened policy this month, but have drifted lower since as expectations of low inflation continued to boost demand for longer-dated debt. Friday’s decline took it closer to a seven-month low of 2.103 percent plumbed on June 14.

The greenback was steady at 111.290 yen, held below a near one-month high of 111.790 touched last Tuesday.

The euro was effectively flat at $1.1192 after rising on Friday to a four-day high of $1.1209.

The pound was buoyant after making strong gains on Friday, helped by a shift in expectations that has some in the market backing the Bank of England to raise interest rates within months.

Sterling was 0.25 percent higher at $1.2750, its strongest in six days.

The Australian dollar edged up 0.2 percent to $0.7580 . The Aussie was battered earlier last week as crude oil prices tumbled to 10-month lows, although it managed to trim some of the losses as oil prices settled. (Reporting by Shinichi Saoshiro; Editing by Eric Meijer)