* Dollar index down 0.3 percent at 79.981
* Investors await auction of 30-yr Treasury bonds
* NZ dollar jumps after RBNZ holds rate at 2.5%
* Eyes on U.S. retail sales
(Recasts, adds quotes, updates prices, changes dateline prvs TOKYO)
By Tamawa Desai
LONDON, June 11 (Reuters) - The dollar edged lower against a basket of currencies on Thursday, erasing some gains made after benchmark U.S. Treasury yields rose to eight-month highs, as caution set in ahead of another U.S. government debt auction.
The dollar was also pressured in the wake of Russia saying it would divert some of its reserves from U.S. Treasuries to IMF bonds, a move that may be highlighted when the world's largest emerging countries meet next week.
Higher-yielding and commodity-linked currencies also gained on the back of views the global recession may be bottoming, as stock and oil prices gained.
U.S. Treasury prices fell on Wednesday, sending benchmark yields up to 4.0 percent for the first time in eight months, after an auction of 10-year notes.
Overall demand and a key proxy for foreign interest were both robust, but a high yield at the auction was above market expectations.
Rising U.S. bond yields have so far boosted the dollar on the basis that it reflected improving U.S. economic conditions. Rising yields have also boosted appetite for U.S. paper from so-called "real money" accounts hungry for yield as interest rates in major economies stand at record low levels as central banks try to stimulate their ailing economies.
However, the market remains cautious if bond yields start rising sharply because of concerns about the U.S. fiscal situation given its ballooning debt.
"Rising U.S. Treasury yields have not acted as a negative yet, but we are very cautious," said Hans Redeker, global head of FX strategy at BNP Paribas in London.
The dollar index, a gauge of the greenback's performance against six other major currencies, fell 0.3 percent to 79.981 from late U.S. trade on Wednesday.
The euro rose 0.3 percent to $1.4014, resuming its rise towards a more than five-month high of $1.4339 touched last week before falling sharply near $1.38 earlier this week.
The euro was flat at 137.21 yen.
The dollar slipped 0.3 percent to 97.87 yen.
Markets were stirred after Russia's central bank said on Wednesday it would diversify its currency reserves by cutting U.S. Treasury purchases and buying IMF-backed bonds. China has also said it would purchase IMF-backed bonds.
Brazil, Russia, India and China are set to meet in Moscow on June 16, and markets expect further talk about diversification of reserves away from the U.S. dollar.
"Ahead of next week's BRIC meeting, the U.S. dollar is bound to face further challenges, in our view," said Chris Turner, head of FX strategy at ING in London.
Analysts also say the dollar may be pressured as an increase in IMF funds would help ailing economics such as the Baltics, which are now being scrutinised, and boost risk appetite.
Meanwhile, the New Zealand dollar rose after the Reserve Bank of New Zealand (RBNZ) kept its key interest rate steady at a record low 2.5 percent, the first pause in nearly a year, but left the door open to resume its aggressive easing cycle to combat recession.
The kiwi climbed as high as $0.6410 after the decision, up 1.7 percent on the day. The currency rose nearly one percent to 62.62 yen.
Investors will wait to see if an auction of 30-year Treasury bonds later in the day will add to rising U.S. long-term yields.
Data on Thursday include U.S. retail sales, which are expected to show a 0.5 percent rise in May after falling 0.4 percent the previous month.