* Dollar clings to gains as U.S. inflation cools a tad
* Euro hits 8-month low vs dollar, 5-1/2-month low vs yen
* Yen, Swiss franc retreat as global stock prices climb
* Aussie rises after central banker mum on recent strength (Updates market action; changes dateline, previous LONDON)
By Richard Leong
NEW YORK, July 22 (Reuters) - The dollar rose on Tuesday as U.S. bond yields held firm on the view the world’s biggest economy is expanding enough for the Federal Reserve to further reduce stimulus despite data showing a mild pullback in some domestic prices in June.
The euro fell to an eight-month low against the greenback, breaking below key support at $1.35, largely on expectations the European Central Bank will provide more stimulus in the coming months, lowering regional interest rates. The euro also hit a 5-1/2 month low versus the Japanese yen
The yen and Swiss franc gave back some of their recent gains against the dollar as traders stepped back into stock markets and risky assets worldwide. The losses of the two currencies, however, were limited due to the ongoing violence in Ukraine and the Middle East, analysts said.
“Looking at the higher U.S. Treasuries yields, you have a higher U.S. dollar,” said Eric Villoria, currency strategist at Wells Fargo Securities in New York.
The benchmark U.S. 10-year Treasuries yield held steady after a government report showed domestic inflation rose 0.3 percent in June, in line with forecasts, but core inflation, which strips out volatile food and energy costs, crept up 0.1 percent, half of what analysts had projected.
The weaker-than-expected core inflation reading was not enough to change the market’s outlook that the U.S. central bank will continue on its slow path to paring its bond purchase program and raise interest rates in the latter half of 2015.
U.S. yields turned higher as Wall Street shares climbed on the mild U.S. inflation figures and a stronger-than-expected June reading on home resales.
The 10-year Treasuries yield edged up 1 basis point from Monday to 2.487 percent, which was still near the low end of this year’s trading range.
The euro lost 0.4 percent against the dollar, hitting a U.S. session low at $1.3460, which was the lowest since Nov. 21. It also shed 0.3 percent against the yen, falling as low as 136.70 yen earlier, a figure last seen on Feb. 5, according to Reuters data.
The yen and the Swiss franc, which traders had piled into on geopolitical uncertainty, declined against the dollar as investor anxiety about the fighting in Ukraine and Gaza relaxed a bit.
The greenback gained 0.1 percent to 101.52 yen and rose 0.5 percent to 0.902 Swiss francs
Among other developed currency markets, the Australian dollar rose in the wake of comments from the country’s central bank chief, Glenn Stevens, who said he was happy with current interest rate levels and made no attempt to talk down the currency.
The Aussie traded 0.2 percent higher versus the dollar at $0.9390. (Additional reporting by Patrick Graham in London; editing by Peter Galloway)