FOREX-Dollar rises with U.S. yields, euro holds above lows

* Dollar rebounds from 3-month lows versus euro, yen

* Above-forecast jobless claims cap dollar's gains

* Euro steadies after German PMI survey (Updates market action, changes dateline, previous LONDON)

By Richard Leong

NEW YORK, May 22 (Reuters) - The U.S. dollar rose against major currencies on Thursday as higher U.S. bond yields revived appeal for the greenback, while the euro recovered from recent lows on upbeat economic data.

The dollar's gains were limited by a bigger-than-expected rise in U.S. weekly jobless claims, while the shared currency has remained pressure by bets the European Central Bank will loosen monetary policy next week to avert deflation.

The yen, which had fared well on worries about the global economy and conflict in the Ukraine, broadly underperformed as investor sentiment improved.

The dollar index that gauges its value against the euro, yen and four other currencies was up 0.17 percent at 80.232, bringing its month-to-date gain to 0.95 percent.

The euro fell 0.2 percent versus the greenback at $1.3655 , recovering from a three-month low of $1.36345 on Wednesday, while the dollar gained 0.3 percent against the yen at 101.63 yen after hitting a 3-1/2-month low against the yen a day earlier.

Higher U.S. Treasuries yields helped the dollar's recovery, but analysts said it was unclear whether it could be sustained.

"It's been difficult to assess the dollar because yields have fallen to these fairly low levels," said Sireen Harajli, currency strategist at Mizuho Corporate Bank in New York.

U.S. 10-year Treasury yields, which have a good correlation with the dollar/yen pair, edged up to 2.54 percent. Last week, they hit 2.473 percent, the lowest since October.

The greenback's rise was held back by a larger-than-forecast rise in weekly domestic first-time for unemployment benefits, raising doubts about another month of strong payroll increase.

EURO FINDS FOOTING

The euro, while weaker against the dollar, held steady against the yen at 138.72 yen, recovering from a 3-1/2 month low of 138.15 yen set on Wednesday.

The euro had fallen early in the London session after data showed French business activity unexpectedly shrinking in May, but quickly recovered ground after the German purchasing managers' index was released.

All of which left the euro zone composite PMI for May at 53.9, bang in line with expectations, and slightly below April's reading of 54. Still, the data pointed to quarterly growth of around 0.3-0.4 percent, some economists said.

"True, it points to some growth, but it's not really enough," said Peter Kinsella, currency strategist at Commerzbank in London. "There are deflationary forces in play and we expect the European Central Bank to cut rates next month, perhaps negative rates too." (Additional reporting by Anirban Nag and Patrick Graham in London; Editing by Bernadette Baum)