* Dollar index stretches rally, hovers just below 5-mth high
* Dollar lifted after strong consumer spending data boosts yields
* Yen shows little reaction to weak Japan Q1 GDP data
By Shinichi Saoshiro
TOKYO, May 16 (Reuters) - The dollar hovered near a five-month high against a group of major currencies on Wednesday, as a surge in the benchmark 10-year Treasury yield above 3 percent reignited a rally that had lost steam last week.
The dollar index versus a basket of six major peers added 0.1 percent to 93.335 after rallying to 93.457 overnight, its highest since Dec. 22.
The greenback had gained with few interruptions since mid-April as easing tensions in the Korean Peninsula and moves by China and the United States to prevent a full-blown trade war allowed investors to focus on the yield advantage the United States enjoys over other countries.
The advance stalled last week after weaker-than-expected April U.S. inflation data, but regained traction overnight as strong U.S. consumer spending numbers sent long-term Treasury yields surging to a seven-year peak of 3.095 percent .
The 10-year Treasury yield had hovered around 3 percent since reaching the threshold late last month on concerns about rising inflation and a ballooning federal budget gap. But until Tuesday, 3 percent level wasn’t convincingly broken.
“The dollar stands to benefit, particularly against the euro, on higher Treasury yields. But against the yen, its advance could stall if the negative impact of higher yields on equities is prolonged,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.
The yen tends to benefit during times of market turmoil and investor risk aversion.
“The next focal point is trying to figure out the yield levels which are bearable for equities,” Ishikawa said.
The uptick in U.S. yields unnerved equity markets and sent Wall Street shares significantly lower on Tuesday.
The euro was 0.1 percent lower at $1.1823 after brushing $1.1817, its weakest since late December.
The dollar was little changed at 110.300 yen, having risen to 110.450 overnight, its strongest since Feb. 5.
The yen barely budged after data showed Japan’s economy contracted for the first time in nine quarters during January-March.
The Australian dollar was largely flat at $0.7467 after sliding 0.7 percent overnight. The New Zealand dollar, which fell about 0.75 percent the previous day to a five-month trough of $0.6855, last traded at $0.6882.
The pound was a shade weaker at $1.3499 after slipping to $1.3452 on Tuesday, its lowest since Dec. 29. (Reporting by Shinichi Saoshiro Editing by Shri Navaratnam)