FOREX-Dollar hovers close to 2-year peak on trade-war, growth worries

* China's move on rare earths stokes anxiety over trade
* Dollar 0.2% 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 steady against its
key rivals on Thursday as escalating Sino-U.S. trade tensions
forced investors to take shelter in safe-haven assets, including
government bonds.
As the standoff between the world's two biggest economies
showed no signs of being resolved, fears of a hit to global
growth has rippled through financial markets in recent sessions,
with riskier assets in particular bearing the brunt of those
concerns.
Against a basket of six major currencies, the dollar inched
0.03% lower to 98.113 .DXY , hovering within reach of a
two-year high of 98.371 reached 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.
Chinese newspapers on Wednesday warned that Beijing could
use rare earth elements to strike back at the United States
after U.S. President Donald Trump remarked 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.
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 yields were last at 2.260%.
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 a tenth of a
percent to $1.1142, recovering somewhat after giving up 0.8% in
three straight losing sessions.
The Australian dollar AUD=D4 added 0.1% to $0.6923.
Elsewhere in the foreign exchange market, the dollar was
steady at 109.565 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 thanks 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)