* Euro bounces slightly after shedding nearly 0.3% overnight
* U.S. 10-yr Treasury yields brush lowest since Sept. 2017
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Daniel Leussink
TOKYO, May 29 (Reuters) - Fears of a further escalation in
the Sino-U.S. trade dispute kept the dollar steady on Wednesday,
holding gains made overnight after investors scooped up
safe-haven assets, including U.S. Treasuries.
The People's Daily newspaper, owned by China's ruling
Communist Party, warned that Beijing was ready to use rare
earths for leverage in its trade war with the United States,
saying in an extremely strongly worded commentary "don't say we
didn't warn you". Losses in the euro in the previous session also helped
support the dollar, as analysts warned of more risks for the
single currency on uncertainty surrounding the euro zone economy
and the bloc's political future.
News late on Tuesday that no major U.S. trading partner met
the Trump administration's currency manipulation criteria had a
muted impact on the foreign exchange market.
"It looks like there has been a real surge in U.S.
Treasuries," said Nick Twidale, chief operating officer at
Rakuten Securities Australia in Sydney.
"We're probably going to see some catch-up in the foreign
exchange market over the next few sessions," Twidale said,
adding that he expected safe-haven currencies such as the
Japanese yen and the Swiss franc to be in demand.
Against a basket of six peers, the dollar was steady at
97.929 .DXY , having ended up 0.3% overnight. The index was
trading 0.45% off a two-year high of 98.371 hit on Thursday and
was still up 1.8% for the year.
The dollar held up even after benchmark 10-year U.S.
Treasury yields US10YT=RR hit as low as 2.240%, their lowest
since September 2017. The greenback's own status as a safe-haven
helped amid worries about the trade tensions and Italy's budget
policy. The U.S. 10-year yields were last at 2.245%. The U.S. Treasury Department said in a report on Tuesday it
reviewed the policies of an expanded set of 21 major U.S.
trading partners and found that nine required close attention
due to currency practices: China, Germany, Ireland, Italy,
Japan, South Korea, Malaysia, Singapore, and
Vietnam. Shusuke Yamada, currency and equity strategist at Bank of
America Merrill Lynch, said the report had a muted impact on
risk sentiment, adding that investors are watching how the
United States and China will deal with their trade dispute going
into the G20 meeting in Japan next month.
The euro EUR= edged up 0.04% to $1.1165, having shed
nearly 0.3% during the previous session. The common currency
remained not far off a near two-year low of $1.11055 brushed on
Thursday.
European Union leaders are set to begin the process of
filling a number of top EU posts, from the head of the European
Commission to the European Central Bank. "The reason we've seen the euro drop off is because the
European zone in particular has been threatened by and troubled
by the trade concerns," said Rakuten's Twidale.
"On the back of that, we also had those European elections
so there's a lot of political instability in Europe," he added.
"That's putting pressure on the currency."
Italian Deputy Prime Minister Matteo Salvini, whose
far-right League triumphed in European elections on Sunday, said
the European Commission could fine Italy 3 billion euros for
breaking EU debt and deficit rules, a comment that weighed on
the single currency. The yen JPY= was unchanged at 109.38 per dollar after
falling overnight on the lower U.S. yields and after U.S.
President Donald Trump said on Monday he expected Japan and the
United States to announce a trade agreement "probably in
August."
The yen, which tends to draw steady support from a
flight-to-safety bid during geopolitical or financial stress as
Japan is the world's biggest creditor nation, remained just 0.2%
above a three-month high of 109.02 yen touched on May 13.
"We think the yen will appreciate but given the carry that
dollar/yen provides...a pickup in volatility would be needed for
a larger move lower in dollar/yen," said Bank of America's
Yamada.
The Australian dollar AUD=D4 inched up 0.1% to $0.6930,
about 0.9% off a recent trough of $0.6865.
(Editing by Simon Cameron-Moore)