FOREX-Dollar holds up near 2-year peak on trade-war, growth worries

* Chinese diplomat ramps up rhetoric in trade war with U.S.
* Dollar just below two-year peak brushed last week
* 2nd estimate of U.S. Q1 GDP in focus
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Daniel Leussink
TOKYO, May 30 (Reuters) - The dollar held up against its key
rivals on Thursday after fears of an escalation in the Sino-U.S.
trade standoff forced investors to take shelter in safe-haven
assets, including government bonds.
As the dispute between the world's two biggest economies
showed no signs of abating, worries that global growth will be
hurt have rippled through financial markets in recent sessions,
with riskier assets in particular taking the brunt of selling.
Against a basket of six major currencies, the dollar was
basically flat at 98.128 .DXY , hovering within reach of a
two-year high of 98.371 brushed a week ago. The index is up more
than 2% for the year.
"The outlook for global growth, and any drag from the
festering trade dispute, remain key issues for markets," said
Michael McCarthy, Sydney-based chief market strategist at CMC
Markets.
"The data over the next twenty-four hours has potential to
either confirm or dispel the gloom," he wrote in a note.
Offering the latest sign the standoff between Washington and
Beijing is far from ending, Chinese Vice Foreign Minister Zhang
Hanhui said on Thursday that provoking trade disputes is "naked
economic terrorism", ramping up the rhetoric against the United
States. Chinese newspapers had warned the day before that Beijing
could use rare earth elements to strike back at the United
States after U.S. President Donald Trump said he was "not yet
ready" to make a deal with Beijing over trade. Investor focus is now on U.S. data for an indication about
the state of the world's top economy, with market participants
awaiting the second estimate of first-quarter gross domestic
product growth figures and U.S. weekly jobless claims.
"As the United States isn't likely to fall into a recession
anytime soon, there's a likelihood that risk sentiment may
improve based on the economy's strength," said Ayako Sera,
market strategist at Sumitomo Mitsui Trust Bank.
The dollar held mostly steady even after benchmark 10-year
U.S. Treasury yields US10YT=RR hit as low as 2.210% overnight,
their lowest since the middle of September 2017.
The greenback's status as the world's reserve currency tends
to attract safe haven bids in times of market turmoil and
political tensions. The U.S. 10-year yield was last at 2.267%.
The dollar was also underpinned by weakness in the euro
EUR= on fresh signs of political tensions between Italy and
the European Union.
The European Commission wrote on Wednesday to the Italian
government asking it to explain a deterioration in the country's
public finances, a move that sets the stage for a possible legal
clash with the eurosceptic coalition in Rome. The single currency on Thursday tacked on almost a tenth of
a percent to $1.1138, recovering somewhat after giving up 0.8%
in three straight losing sessions.
The Australian dollar AUD=D4 added 0.15% to $0.6926.
Elsewhere in the foreign exchange market, the dollar was
steady at 109.59 yen JPY= , about 0.5% above a more than
three-month low of 109.02 yen touched on May 13.
Analysts said the yen, another safe-haven asset backed by
Japan's status as the world's biggest creditor nation, remained
relatively weak due to domestic investors' demand for dollars.
"As there's persistent yen-selling and dollar-buying from
Japanese investors when the rate approaches the 109.10 yen per
dollar level, it's not easy for the yen to rise above the 109
level," said Yukio Ishizuki, senior currency strategist at Daiwa
Securities.

(Editing by Shri Navaratnam and Jacqueline Wong)