FOREX-Dollar index hovers near recent highs, awaits clarity from Fed

Reuters

* Dollar index well supported near three-week peak

* Markets seek more policy clarity from string of Fed speakers

* Chinese yuan hits 13-month low (Updates prices, adds comments)

By Anirban Nag

LONDON, March 21 (Reuters) - The dollar hovered near a three-week peak against a basket of major currencies on Friday, but struggled to extend gains as investors awaited more clarity on the Federal Reserve's policy path.

Fed officials including Richard Fisher, James Bullard and Narayana Kocherlakota are due to speak later on Friday, after Fed Chair Janet Yellen surprised markets mid-week by suggesting the possibility of raising interest rates early next year.

U.S. yields have moved higher as markets brought forward the risk of a Fed rate hike to early next year. Further rises in yields would depend on how strong U.S. data is in the second quarter which in turn could bolster the dollar's allure.

The dollar index was steady at 80.212, not far from a high of 80.354 set on Thursday and last seen in late February.

"Investors are awaiting for further confirmation from the Fed on its rate path especially if U.S. data in the second quarter starts to look up," said Geoffrey Yu, currency strategist at UBS. "For us, the dollar is a buy on dips."

The U.S. economic calendar is thin on Friday after mixed data on Thursday, when a rebound in factory activity in the Mid-Atlantic region held out hope the economy might be regaining strength after being hobbled by severe weather.

With the dollar pausing after recent gains, the safe-haven yen and Swiss franc outperformed as traders cut positions in risky assets going into the weekend amid rising tension between Russia and the West following Moscow's annexation of Crimea. Russian stocks fell sharply as investors digested the impact of U.S sanctions over the crisis in Ukraine.

EU leaders meeting in Brussels are mulling wider economic sanctions, all of which are keeping a lid over European stocks and contributing to some caution amongst investors.

The dollar fell 0.3 percent against the yen to 102.10 after topping out at 102.69 on Wednesday. The euro was also down 0.3 percent against the yen at 140.625 yen while the single currency was slightly lower against the Swiss franc at 1.2172 francs.

EURO STEADIES, YUAN AT LOWS

The euro held steady at $1.3780, having plumbed a two-week low of $1.3749 on Thursday. The euro was on track to post a roughly 1 percent drop this week.

"Euro seems to have formed a pretty good top, $1.3850 area, so I'm thinking to sell into any headline-induced spikes," said Jeffrey Halley, FX trader for Saxo Capital Markets in Singapore, referring to the euro's near-term outlook.

Meanwhile, the Chinese yuan hit a 13-month low after the central bank lowered the mid-point of its permitted trading range, which is seen as a signal of official comfort with the currency's recent losses.

Markets already fretting about slower growth in the world's second-biggest economy fear the sharp drop in the yuan could raise pressure on Chinese companies with foreign currency debt and expose holders of offshore yuan derivatives to heavy losses.

The yuan has shed more than 1.2 percent so far this week after the central bank last weekend doubled the currency's permitted trading range to 2 percent either side of the fixing.

It showed some signs of stabilising after hitting those lows on Friday but the fall would still be the biggest weekly loss for the yuan, based on Thomson Reuters data going back to 1992.

(Additional reporting by Masayuki Kitano; Editing by Catherine Evans)

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