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FOREX-Market takes a shine to the dollar, shuns euro

* Dollar index holding near a six-month peak

* Euro wallows at an eight-month trough vs USD

* FOMC, U.S. GDP and nonfarm payrolls main focus this week

By Ian Chua

SYDNEY, July 28 (Reuters) - The U.S. dollar hovered near six-month highs against a basket of major currencies early on Monday, holding onto solid gains made last week as investors turned bearish on the euro.

A closely watched report on Friday showing a slump in German business sentiment and news the European Union was a step closer to imposing economic sanctions on Moscow had undermined the common currency.

The euro, which fell 0.7 percent last week, languished near an eight-month trough of $1.3421. Against the yen, it traded at 136.69, not far from a six-month low of 136.37 plumbed on Thursday.

The dollar index was steady at 81.028, having peaked at 81.084 on Friday, a high not seen since early February. So far this month, it has rallied almost 1.6 percent, on track for its best monthly gain since January.

Latest figures from the Commodity Futures Trading Commission showed currency speculators had increased bullish bets on the greenback in the week ended July 22.

Oddly, U.S. Treasury yields remained pinned down, suggesting investors were not driven by any material change to the U.S. economic outlook.

In fact, the Federal Reserve policy review this week is likely to end with the same dovish message from Chair Janet Yellen.

But analysts at Barclays believe top tier U.S. data including gross domestic product on Wednesday and payrolls on Friday could challenge that perception.

"Overall, we expect a relatively upbeat set of data releases, which ought to give the U.S. dollar further support over the week," they wrote in a report to clients.

"We do not expect the Fed to deliver any major surprises, with further tapering of $10 billion likely to be announced."

The dollar also firmed against its Canadian peer, with buy-stops reportedly triggered after the greenback broke above C$1.0800. It was last at C$1.0813, having climbed as far as C$1.0822, a high last seen on June 20.

The New Zealand dollar was nursing a second week of steep losses, having tumbled nearly 3 percent in the past two weeks.

Kiwi bulls were given a reality check last week after the Reserve Bank of New Zealand signalled it was pausing its tightening cycle following four straight interest rate hikes.

The kiwi last traded at $0.8556, not far from a 6-week trough of $0.8539 hit on Friday.

Asia is staring at the prospect of a subdued session given an absence of any meaningful economic data and with many centres in South-East Asia shut for a holiday.

Investors are also likely to be wary of taking big positions in the lead up to the July 29-30 Fed policy meeting and key U.S. data.

(Editing by Shri Navaratnam)