* Dollar rebounds off lows as yields climb
* Euro/dollar hovers above $1.21
* Aussie, Kiwi gain as sentiment improves
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
(Adds new quote, latest prices, details, chart)
By Tommy Wilkes
LONDON, Jan 12 (Reuters) - The U.S. dollar held onto its
recent gains on Tuesday after a spike in U.S. Treasury yields
lifted demand for the currency.
The dollar had hit a more than 2-1/2-year low in January
after sliding for months as ultra-dovish policy from the Federal
Reserve encouraged investors to seek alternative currencies.
But expectations for a wave of spending under an incoming
Joe Biden administration have pushed Treasury yields higher,
with the 10-year yield reaching a 10-month high on Tuesday. The
dollar has bounced 1.5% since last Wednesday.
Not only have markets brought forward bets on Fed interest
rate increases to 2023, many also reckon it could start
withdrawing, or tapering, asset purchases earlier.
The dollar index, which measures the greenback against a
basket of currencies, was unchanged at 90.438 =USD , above lows
of 89.206 hit last week.
Against the euro, the dollar stood still at $1.2153
EUR=EBS .
The support from rising yields has so far trumped worries
that the extra spending could trigger faster inflation. But many
analysts expect the dollar to resume its decline as stimulus
spending and vaccine rollouts brighten the global economic
outlook.
ING analysts said Fed officials due to speak later on
Tuesday were likely to pour cold water on any suggestion of
slowing monetary stimulus support.
"Any policy-related comments should – in our view – go in
the direction of ruling out any unwinding of monetary stimulus
in the foreseeable future," they said.
"With the Fed's rate expectations firmly at the bottom, any
further rise in U.S. yields will remain a function of rising
inflation expectations or term premium, which leaves us
confident on our bearish-dollar call."
Morgan Stanley, however, has recommended a neutral view on
the dollar. It has closed a dollar-bearish trade versus the euro
and the Canadian dollar and removed its bullish view on emerging
market currencies, in part because U.S. real rates are likely
"troughing".
Most emerging market currencies rose on Tuesday, including
the offshore yuan CNH=EBS , Mexican peso MXN=D3 and South
African rand ZAR=D3 .
With equity markets back in a bullish mood, riskier
developed market currencies such as the Australian and New
Zealand dollars also rose. Both gained about 0.4%
Bitcoin BTC=BTSP stabilised at around $35,500 after
Monday's huge drop. The cryptocurrency's rally has faltered
since it soared to a record high of $42,000 on Jan. 8.
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(Editing by Larry King and Pravin Char)