December 28, 2017 / 5:13 AM / in a year

FOREX-Dollar slips to 3-1/2 week lows; commodity currencies stand tall

* Dollar index slips to lowest since Dec. 1

* Commodity currencies remain firm, Aussie hits 2-month high

* Recent pullback in US 10-year yield weighs on dlr -analyst (Updates prices, adds comments)

By Masayuki Kitano

SINGAPORE, Dec 28 (Reuters) - The dollar was on the defensive on Thursday, hampered by a recent dip in U.S. 10-year bond yields, while commodity-linked currencies were bolstered by this week’s rally in metals and oil prices.

The dollar’s index against a basket of six major currencies slipped to 92.842 at one point, its lowest level since Dec. 1.

The index has dropped 9.2 percent this year, putting it on track for its biggest annual slide since 2003.

“Bond yields have pulled back from their peaks and the dollar is trading with a soft tone,” said Satoshi Okagawa, senior global markets analyst at Sumitomo Mitsui Banking Corporation in Singapore, referring to a pullback in U.S. 10-year Treasury yields.

The U.S. 10-year Treasury yield stood at 2.425 percent on Thursday, having come off a nine-month high of 2.504 percent set last week.

The euro scaled a 3-1/2 week high of $1.1920. The single currency has gained 13.3 percent so far this year, well on the way for its best annual performance since 2003.

The dollar fell 0.3 percent to 113.02 yen, edging away from a four-week high of 113.75 yen touched on Dec. 12.

This week’s drop in the dollar probably partly reflects a sell-the-fact type of reaction after U.S. President Donald Trump signed U.S. tax reforms into law last week, said Lee Jin Yang, macro research analyst for Aberdeen Standard Investments in Singapore.

“I think people have been long dollars into the (Fed’s December) rate hike, into the passage of the tax bill, and right now people are just pulling back,” Lee said, referring to short-term market positioning.

He cautioned against reading too much into this week’s activity, given that thin year-end trading conditions can exaggerate market moves.

Currencies of commodities exporters remained firm, in the wake of this week’s rise in oil prices to 2-1/2 year highs and a surge in copper prices to four-year peaks.

The Australian dollar touched a two-month high of $0.7791 on Thursday, and has gained nearly 1 percent so far this week.

The Canadian dollar touched a high of C$1.2624 per U.S. dollar at one point, matching its early December peak, which was the highest since October. (Reporting by Masayuki Kitano; Editing by Sam Holmes & Shri Navaratnam)

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