FOREX-Dollar falls after weak U.S. consumer confidence data

Reuters

* Dollar index slides on lower U.S. bond yields

* Dollar falls against euro and yen

* Aussie trades lower as yuan declines

By Sam Forgione

NEW YORK, Feb 25 (Reuters) - The dollar fell against a basket of major currencies on Tuesday after soft U.S. consumer confidence data drove bond yields lower, weakening demand for the U.S. currency.

The Conference Board's index of consumer attitudes fell to 78.1 in February from a downwardly revised 79.4 in January, where economists in a Reuters poll had expected 80.0.

The yield on the benchmark 10-year U.S. Treasury note fell to a session low of 2.7 percent after the data, indicating higher bids for the safe-haven bond in response to the weak data and pressuring the dollar.

The dollar index was last trading down 0.11 percent at 80.11.

"Interest rates holding at their lows of the day is why we have dollar weakness," said Brian Dangerfield, currency strategist at RBS Securities in Stamford, Connecticut.

The dollar recovered some of its losses after U.S. Federal Reserve Governor Daniel Tarullo, the U.S. central bank's point person on financial supervision, said a tightening of monetary policy cannot be "taken off the table" in light of risks to financial stability.

Tarullo's comments suggested the Fed could raise interest rates, which would be positive for the dollar. The central bank has kept interest rates at near-zero levels for more than five years to help the economy recover from recession.

The dollar's rebound was short-lived, however, as lower U.S. bond yields kept the dollar weak.

The dollar was down against the euro, which last traded up 0.1 percent at $1.3749. The dollar was also down 0.29 percent against the Japanese yen to trade at 102.2.

The euro gained after the closely watched German Ifo survey beat expectations on Monday. The gains against the dollar came despite new European Commission forecasts which predicted 1 percent inflation this year and 1.3 percent in 2015, well short of the European Central Bank's target of just below 2 percent.

In a week lacking major economic data, all eyes will be on Friday's first estimate of euro zone February inflation. Recent months' numbers have seen price growth sliding below 1 percent, strengthening the case for more action by the European Central Bank to promote growth.

The Australian dollar, meanwhile, was down after a fall in China's yuan currency, which reflected concern over growth and moves by the People's Bank of China (PBOC) to prod the currency lower.

The Aussie is the nearest developed world currency to a proxy for growth in China, which takes much of Australia's commodities output.

The Australian dollar was down 0.08 percent at US$0.9029 , although it was still some way above January's three-and-a-half-year low of $0.8660.

Meanwhile, the Norwegian crown hit a fresh three-month high of 8.2665 crowns per euro, in largely subdued trading in major currencies.

That extended Monday's gains after German drug firm Bayer's $2.9 billion deal to buy Norwegian cancer drug maker Algeta. The euro was last trading 0.09 percent lower at 8.2975 crowns per euro.

"It's hard to know what the knock-on effect of the yuan drop will be, because the market is unsure as to what's the driver - is it the PBOC curbing speculation, increased political tensions between the U.S. and China, or something else?" said Vincent Crimmins, head of FX strategy and trading at the Bank of Ireland in Dublin.

"For now it appears to be relatively contained, but the Aussie would be the likely underperformer should it materialise into something of significance, with the dollar and the yen the likely outperformers."

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