FOREX-Dollar off recent highs, hampered by doubts about U.S. growth momentum

Reuters

* Dollar index holds steady, struggles to gain traction

* Latest U.S. data fails to back up last week's USD rally

* Aussie dollar hits 2014 high, lifted by stop-loss buying (Updates prices, adds comments)

By Ian Chua and Masayuki Kitano

SYDNEY/SINGAPORE, March 25 (Reuters) - The dollar held steady against a basket of major currencies on Tuesday, keeping a low profile after slipping on the previous day in the wake of a disappointing reading on U.S. manufacturing activity.

The dollar index last fetched 79.952, having backed away from Monday's session high of 80.290 and a three-week peak of 80.354 set last Thursday.

The greenback had edged lower on Monday, after financial data firm Markit said its preliminary U.S. Manufacturing Purchasing Managers Index slipped to 55.5 from 57.1 in February.

Investors had bought the greenback last week after new Federal Reserve chair Janet Yellen suggested the possibility of raising interest rates early next year.

But traders said the rally was always going to need backing up from strong U.S. economic data.

Sadly for dollar bulls, recent data have not been convincing enough despite the fact they offered hope that the world's biggest economy was picking up momentum after a weather-induced slowdown.

"Even with the move down in the headline (PMI reading) in March, it remained pretty solid and many of the underlying details also looked strong in March," analysts at JPMorgan wrote in a note to clients.

"This reinforces our contention that U.S. data should be more supportive of higher US Treasury rates and hence the USD as weather effects and inventory distortions fade."

Later on Tuesday, the dollar could take its cues from a batch of U.S. economic data including readings on consumer confidence and new home sales, as well as speeches from Atlanta Fed President Dennis Lockhart and Philadelphia Fed President Charles Plosser.

The euro steadied around $1.3835, having pulled up from Monday's session low of $1.3760.

Next up for the euro watchers is the Munich-based Ifo think tank's survey on German business morale, due later on Tuesday.

Against the yen, the dollar inched up 0.1 percent to about 102.33 yen, but stayed below Monday's high of 102.65 yen.

"Activity has been pretty dull, it seems as if players haven't been making too much moves," said a trader for a European bank in Tokyo, adding that market participants were keeping a wary eye on tensions in Ukraine.

The Australian dollar rose to as high as $0.9158, its highest level since December, driven by stop-loss buying. The Aussie last fetched $0.9139, up 0.1 percent from late U.S. trade on Monday.

The foray above its recent peaks of $0.9135, $0.9136 and $0.9138 were all bullish technical signals that suggested further upside for the currency.

That may trigger a fresh round of verbal campaigning against the Aussie from central bank officials. The Reserve Bank of Australia (RBA) has long said the local dollar is historically high and that a lower currency would help rebalance the economy.

The Chinese yuan held firm against the dollar, a day after posting its biggest gain in nearly 30 months on speculation the Chinese government would unveil stimulus measures to support the economy.

The yuan rose about 0.1 percent versus the dollar to 6.1827 , after having risen 0.6 percent on Monday.

Just last week, the yuan suffered its biggest weekly drop after the central bank stepped up efforts to shake out hot money from the market.

The wild swings in the yuan have unsettled some investors already fretting over news of a domestic bond default and slowing economic growth.

U.S. President Barack Obama has urged Chinese President Xi Jinping to move his country's currency toward a more flexible, market based-exchange rate.

(Additional reporting by Cecile Lefort in Sydney; Editing by Shri Navaratnam)

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