FOREX-Dollar climbs, tracking U.S. yield spike

* Dollar bolstered as U.S. Treasury yields rise

* Dollar index rises above 80 (.DXY: ), breaches 100-day MA

* U.S. currency rises 0.4 pct to 83.90 yen (JPY=: )

(Adds comment, updates prices)

By Tamawa Desai and Naomi Tajitsu

LONDON, Dec 8 (BestGrowthStock) – The dollar rose on Wednesday on a
spike in U.S. Treasury yields after a proposed extension of tax
cuts raised growth expectations for the U.S. economy.

Traders took their cue to buy the dollar from a rise in the
10-year U.S. Treasury yield to 3.25 percent (US10YT=RR: ), a level
not seen since late June. [US/]

Higher yields were seen as dollar supportive near-term,
despite the adverse fiscal impact of the U.S. government’s tax
plan.

Analysts said the dollar would be buttressed by higher
Treasury yields ahead of a 10-year U.S. bond auction later in
the day and a 30-year auction on Thursday.

Auctions at the end of the year tend to attract tepid demand
as liquidity dries up, but some in the market say that if the
sales go smoothly, yields will likely back down, withdrawing
some support for the dollar.

“The move in spreads in a thinning market has prompted some
people who had been short on the dollar to put back on some
positions,” said Peter Frank, currency strategist at Societe
Generale.

“But there’s little chance for high yields to linger, apart
from the supply issue,” he said, adding that dollar’s rally
would be short lived.

The dollar index (Read more about the global trade. ) (=USD : )(.DXY: ), a gauge of its performance
against a basket of major currencies, rose 0.4 percent from late
U.S. levels to 80.167, moving above its 100-day moving average
at 79.981. If sustained that would be a bullish signal.

The greenback, which made its biggest one-day gain against
the yen in nearly three months on Tuesday, rose a further 0.4
percent to 83.90 yen (JPY=: ). It briefly rose above 84 yen, where
there is a resistance band through 84.40 that has capped its
recent rally.

The euro fell (Read more about the trembling euro. ) 0.1 percent $1.3244 (EUR=: ). Its failure this
week and last to hold above $1.3400 suggests a probe lower, with
a sustained break of $1.3180 opening the way for a test of
$1.3060/50.

Bids from Asian central banks and Middle East accounts were
seen around $1.3200 and $1.3180, respectively, traders said, and
few analysts expect the euro to break below $1.30 anytime soon.

Ireland moved a step closer to securing bailout funds after
passing the first in a series of votes on its toughest budget on
record, but traders said investors were still likely to sell the
euro on any bounce given broader worries about the European
Union’s ability to keep debt problems from spreading.

Markets concerns over North Korea firing artillery shells in
a suspected military drill were also helping the dollar
[ID:nN08113240]

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For analysis on US tax deal [ID:nN07277043]

Full coverage of tax and deficit debates [ID:nN06200548]

Graphic: Tax proposal: record deficit, more growth

http://r.reuters.com/fuc98q

Graphic: U.S., European debt, deficits and bond yields

http://r.reuters.com/gyb29q

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UPBEAT

Analysts said the dollar’s outlook appeared well-supported
in the near term.

“The market seems happy for now to follow U.S. yields which
have boosted the dollar,” said Geoffrey Yu, currency strategist
at UBS in London.

The yield jump made the dollar more attractive to those
chasing higher yields and cuts the yield advantage of currencies
such as the Australian dollar, which slipped 0.3 percent on the
day to $0.9815 (AUD=D4: ).

Bucking Wednesday’s dollar-buying trend, sterling (GBP=D4: )
rose 0.2 percent to $1.5790, shaking off early losses after an
unexpected jump in UK factory orders cemented the view the
trundling manufacturing sector was helping the economy recover.

Market participants say dollar positioning is more or less
flat at the moment, and that few investors are keen to take on
significant long positions at the moment.

As a result, the year-end climb in the dollar seen in 2009
may prove elusive, some analysts say.

(Editing by Toby Chopra)

FOREX-Dollar climbs, tracking U.S. yield spike