* US may raise China tariffs to 25 pct from 10 pct - sources
* Yuan and Aussie dip on risk of trade escalation
* Yen on defensive after BOJ pledge to keep rates low
By Hideyuki Sano and Wayne Cole
TOKYO/SYDNEY, Aug 1 (Reuters) - The U.S. dollar edged up on the yuan and growth-leveraged currencies on Wednesday after a source said the White House was about to propose higher tariffs on $200 billion in Chinese imports, perhaps sparking a new round of trade hostilities.
The dollar was up 0.39 percent at 6.8290 yuan after reports circulated President Donald Trump would propose tariffs of 25 percent, instead of 10 percent, in an announcement that could come as early as Wednesday.
The Australian dollar, often used as a proxy for China plays, dipped 0.2 percent to $0.7412. Against a basket of currencies the dollar added 0.1 percent to 94.577, while the euro held steady at $1.1684.
“The jury is out on whether this is yet another ‘clever’ negotiating tactic by the U.S., but the market has reacted as expected and risk appetite looks set once again to pull back over the next couple of trading sessions,” said Nick Twidale, COO at Rakuten Securities.
The dollar was also holding the whip hand against the yen after Tuesday’s pledge by the Bank of Japan to keep rates extremely low for an extended period.
The dollar was poised at 111.82 yen as bulls girded for another test of resistance around 112.00.
Analysts say Japanese bond yields are likely to stay low in the near-term, capping the yen. “Because the BOJ has bought a large amount of JGBs in recent special operations, market players don’t have JGBs to sell even if they want to,” said Yukio Ishizuki, senior strategist at Daiwa Securities. “With the BOJ out of the way, we don’t have reasons to buy the yen. I expect the yen to test this year’s low around 113 yen to the dollar,” he added.
In contrast, solid U.S. economic growth is likely to keep the Federal Reserve on track for another two hikes this year as it concludes its Federal Open Market Committee (FOMC) policy meeting on Wednesday.
Data out Tuesday showed U.S. consumer spending increased solidly in June even as wage growth stayed restrained.
The core PCE index, the Fed’s preferred inflation measure, rose 1.9 percent from a year earlier for a third straight month, near the Fed’s two-percent inflation target.
“Though the tariff tantrum ramped up a bit since the last FOMC confab, the core of the Fed is thus far unconvinced that this warrants any material shift in the outlook,” said Tom Porcelli, chief U.S. economist at RBC Capital Economics.
“Our core view remains that the Fed is poised to raise the funds rate by additional 50 basis points this year and another 100 basis points in 2019.”
The Bank of England holds its policy meeting on Thursday and markets are pricing in a near-90 percent chance of a quarter-point hike in rates.
Yet with the move already so discounted, sterling has gained limited support at $1.3113. (Editing by Simon Cameron-Moore)