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* Dollar bolstered as U.S. Treasury yields rise
* Dollar index rises above 80 <.DXY>, breaches 100-day MA
* U.S. currency rises 0.4 pct to 83.90 yen
By Gertrude Chavez-Dreyfuss
NEW YORK, Dec 8 (Reuters) - The dollar firmed on Wednesday and may sustain gains in the near term, as Treasury yields spiked following a proposed extension of tax cuts that raised growth expectations for the U.S. economy.
For the first time in weeks, euro zone debt concerns were placed on the back burner as investors focused on U.S. economic fundamentals in a thinning market.
Some analysts said the tax cuts could add as much as 2
percentage points to U.S. gross domestic product, adding such
views have contributed to a rise in the 10-year U.S. Treasury
yield to 3.25 percent
Higher yields tend to support the greenback, as they reflect stronger growth and make some dollar-denominated assets more attractive to investors.
"Tax cuts are being perceived as positive for growth, positive for stocks, certainly outweighing the long-term negative impact on the U.S. fiscal deficit," said Michael Woolfolk, senior currency strategist, at BNY Mellon in New York. "The dollar is therefore benefiting."
Yields, however, could decline as a 10-year U.S. bond auction later in the day and a 30-year auction on Thursday loomed. Auctions at the end of the year tend to attract tepid demand as liquidity dries up, but some in the market say if the sales go smoothly, yields will likely back down, withdrawing some support for the dollar.
"The move in spreads in a thinning market has prompted some people who had been short on the dollar to put back on some positions," said Peter Frank, currency strategist at Societe Generale.
In early New York trading, the ICE Futures' dollar index <.DXY>, a gauge of its performance against a basket of six major currencies, rose 0.2 percent from late U.S. levels to 80.043, moving above its 100-day moving average at 79.981. If sustained that would be a bullish signal.
The greenback, which made its biggest one-day gain against
the yen in nearly three months on Tuesday, rose a further 0.6
percent to 83.93 yen
The euro fell 0.1 percent to $1.3246
Bids from Asian central banks and Middle East accounts were seen around $1.3200 and $1.3180, respectively, traders said, and few analysts expect the euro to break below $1.30 anytime soon.
Ireland moved a step closer to securing bailout funds after passing the first in a series of votes on its toughest budget on record, but traders said investors were still likely to sell the euro on any bounce given broader worries about the European Union's ability to keep debt problems from spreading.
Markets concerns over North Korea firing artillery shells in a suspected military drill also helped the dollar [ID:nN08113240]
For analysis on US tax deal [ID:nN07277043]
Full coverage of tax and deficit debates [ID:nN06200548]
Graphic: Tax proposal: record deficit, more growth
http://r.reuters.com/fuc98q
Graphic: U.S., European debt, deficits and bond yields
http://r.reuters.com/gyb29q
Graphic: U.S. Treasuries sell-off:
http://r.reuters.com/ruj29q
Market participants said dollar positioning was neutral at the moment and few investors are keen to take on significant long positions. As a result, the year-end climb in the dollar seen in 2009 may prove elusive, some analysts say. (Additional reporting by Tamawa Desai in London; Editing by Chizu Nomiyama)