* Dollar index trades near three-week high
* Euro struggles on Italian budget concerns
* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh
By Daniel Leussink
TOKYO, Oct 2 (Reuters) - The yen traded near its lowest in more than 10 months against the dollar on Tuesday, weighed down by increased risk appetite after the United States and Canada reached a last-minute deal on Sunday to replace the North American Free Trade Agreement.
The dollar consolidated recent gains, hovering near a three-week high, boosted by higher U.S. Treasury yields and as the euro dipped on prolonged worries about Italy’s budget deficit.
The yen was broadly flat at 113.99 yen per dollar. It fell as low as 114.06 in the previous session, its weakest since November last year.
“Overall, I do think the yen is acting as a proxy to risk...115 will definitely be a level that I don’t think will be so easy to break through,” said Bart Wakabayashi, Tokyo branch manager at State Street Bank.
“You’re probably looking at 114.70 as a pretty strong resistance level that will probably see some selling emerge, whether it’s profit-taking or people trying to lock in their rates.”
The newly named United States-Mexico-Canada Agreement announced on Sunday preserves a $1.2 trillion open-trade zone that was on the brink of collapse after nearly a quarter century.
Following the trade deal, yields on U.S. government bond rose as traders sold the safe-haven debt for riskier assets.
While fears about international trade conflicts have helped boost the dollar this year, an increasingly confident U.S. Federal Reserve has also lifted the greenback.
The dollar is now up 1.1 percent against the yen so far this year, after gaining 2.3 percent against the Japanese currency in September.
The yen was also weighed down by Japan’s Nikkei scaling a fresh 27-year peak on Tuesday.
“As we approach 115, it’s definitely a level where real money managers are going to reevaluate their current strategies or weightings,” said State Street’s Wakabayashi.
“If we close this week above 114, that’s going to be a significant milestone,” he said.
The dollar index, which measures the greenback against a basket of six currencies, edged higher to 95.310 after hitting a three-week high of 95.373 in the previous session.
The Canadian traded at C$1.2809 per dollar, holding on to most of its 0.7 percent gains from the previous day.
Elsewhere, the euro dipped against the dollar on renewed concerns about Italy’s budget deficit.
Italian Deputy Prime Minister Luigi Di Maio accused European Union officials of deliberately upsetting financial markets with negative comments about Italy’s budget plans.
He was taking aim at European Economic Affairs Commissioner Pierre Moscovici, who earlier said that Rome’s plans were “obviously” deviating from EU rules on fiscal discipline.
The euro edged 0.03 percent lower against the greenback to $1.1576.
Reporting by Daniel Leussink; editing by Eric Meijer