FOREX-Dollar clings near 8-week high after rising on upbeat U.S. data

Reuters

* Dollar index near its highest level in nearly 8 weeks

* Upbeat U.S. data helps lift dollar sentiment

* Dollar/yen hovers within sight of a 2-week high (Adds comments, updates prices)

By Ian Chua and Masayuki Kitano

SYDNEY/SINGAPORE, May 28 (Reuters) - The dollar held steady near an eight-week peak against a basket of major currencies on Wednesday, having edged up on the back of encouraging U.S. economic data.

The dollar index last stood at 80.340, staying near a high of 80.470 set on Tuesday, its highest level since early April.

Dollar bulls took heart after data on Tuesday showed orders for long-lasting U.S. manufactured goods unexpectedly rose in April and consumer confidence perked up in May.

Against the yen, the dollar held steady near 101.94 yen , staying within sight of a near two-week high around 102.14 yen that had been set on Tuesday.

"I think it's okay to stick with a basic stance of buying (the dollar) on dips," said a trader for a Japanese bank in Singapore.

While Japanese exporters may sell the dollar going into the month-end, those flows are not as large as they once were, the trader said.

On the other hand, there has recently been talk of some yen-selling interest among Japanese investors, he said, adding that flows out of Japan could help support the dollar versus the yen.

Japan's trade deficits are seen as a supportive factor for the dollar versus the yen over the medium term, as they suggest that net foreign exchange flows generated by the country's exports and imports are tilted toward yen-selling.

The euro held steady at $1.3636, having recovered from a three-month low of $1.3612 plumbed on Tuesday.

Comments from European Central Bank (ECB) President Mario Draghi again highlighted the bank's discomfort over persistently low inflation and suggested some kind of policy action was likely at its June 5 meeting.

At the final day of the ECB Forum in Portugal, Draghi said the ECB was aware of the risks from prices remaining too low for too long and the ECB was equipped to get inflation back to its target again.

Traders said further downside for the euro will depend on how aggressively the ECB acts to tackle the threat of deflation.

In the meantime, there is a risk of a short-covering bounce in the euro going into next week's policy review, analysts at BNP Paribas wrote in a note to clients.

"But our positioning analysis suggests markets have not yet become overly short euro, and we suspect longer-term investors with large euro exposures may be only beginning to consider hedging away their euro risk," they said.

The New Zealand dollar slipped 0.2 percent to $0.8545 , having eased after a private survey showed that New Zealand business confidence slid to a seven-month low in May.

Still, the current market backdrop remains a supportive one for the New Zealand dollar, said Hamish Pepper, a currency strategist for Barclays in Singapore.

Low implied volatilities, recent gains in U.S. share prices and very accommodative monetary policies from major central banks are all positive for carry trades, Pepper said.

"Taking a step back and just thinking about the environment we're in currently, it is one that is still supportive of carry currencies, and in G10 that is Aussie and kiwi," Pepper said.

Subdued market volatility and an increase in investor risk appetite can help bolster demand for carry trades, in which investors sell low-yielding currencies to fund investment in higher yielding currencies and assets.

(Editing by Jan Paschal & Kim Coghill)

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