FOREX-Dollar steadies vs euro; falls vs Aussie, yen

Wed Dec 29, 2010 6:39am EST

* Dollar steady vs euro, comes off lows as U.S. yields spike

* Swiss franc near record high; commodity currencies gain

* Dollar falls vs yen; trade thin, volatile

(Updates prices, changes byline, dateline; previous TOKYO)

By Jessica Mortimer

LONDON, Dec 29 (Reuters) - The dollar steadied against the euro on Wednesday as a spike in U.S. Treasury yields helped it recover from losses the previous day, while gains in commodity prices buoyed the likes of the Australian and Canadian dollars.

The market remained very thin, however, and susceptible to exaggerated moves after a yo-yo session the previous day which was marked by year-end flows and saw the dollar fall sharply against a range of currencies.

The turnaround came as U.S. Treasury yields rose across the board, with the benchmark 10-year issue gaining 16 basis points to just shy of 3.50 percent after a poor auction of five-year bonds. [US/]

The auction also served as a reminder of fiscal problems facing the United States. Coupled with concerns about a debt crisis in the euro zone, this buoyed the yen and kept the Swiss franc near record highs versus the dollar and euro as investors sought safety.

The dollar index, which tracks the greenback's performance against a basket of currencies, was slightly easier on the day at 80.276 .DXY, though it held above Tuesday's low of 79.596.

Weak U.S. consumer confidence and home price data on Tuesday, pointing to a fragile economy, [ID:nN28251373] weighed on the dollar and tempered its recovery.

"Cheaper U.S. Treasury prices make them more attractive but only to a point, and there could come a point when investors don't want to buy them any more," said Neil Mellor, currency strategist at Bank of New York Mellon.

He added that the greenback was soft against the yen as Japanese exporters have been selling on concerns about a weakening dollar, as well as against commodity-linked currencies, though he cautioned against reading too much into moves in such an illiquid market.

Investors will watch for a sale of seven-year U.S. debt on Wednesday.

The euro was steady on the day at $1.3123 EUR= after a whipsaw move on Tuesday that took it to $1.3275, its strongest since Dec. 17. It held above support at its 200-day moving average, now at $1.3084, and last week's low just above $1.3050.