LONDON (Reuters) - The dollar rose against a basket of currencies on Monday to trade near its highest in over two weeks, boosted by expectations U.S. monetary stimulus would soon be scaled back.
However, equity markets falls due to concerns the Chinese central bank would keep policy tight and dampen growth limited the dollar's gains against the safe-haven yen.
Its gains against the euro were also tempered after a survey showing a small increase in German business morale helped keep the single currency above key chart support.
The dollar index <.DXY>, was up 0.3 percent at 82.584 after rising as high as 82.742, its highest since June 5. The gains built on last week's 2.2 percent rally, its biggest weekly rise in 19 months.
Federal Reserve Chairman Ben Bernanke said last Wednesday that the U.S. central bank could taper its monthly $85 billion in asset purchases if the economy continues to improve.
This helped push up the benchmark 10-year U.S. Treasury yield to its highest in almost two years in Asia on Monday with interest rate differentials moving in favor of the dollar and boding well for it.
The dollar was up 0.1 percent at 97.97 yen, below an earlier peak of 98.72 on EBS trading platform, its highest since June 11, as European shares <.FTEU3> fell 1.5 percent.
"There is scope for higher-yielding currencies to fall further against the dollar ... but if risk aversion continues then it could be hard for dollar/yen to move higher," said Lee Hardman, currency economist at BTMU.
He said the dollar could struggle to rise above chart resistance around 99.25 yen, the 55-day moving average.
The euro was last down 0.1 percent at $1.3105 after dropping as low as $1.3078, a level not seen since June 6.
The day's low of $1.3078 coincides with the 50 percent retracement from the April 4 low of $1.2740 to last week's high, and is near support at $1.3073, the 200-day moving average.
Expectations of tighter U.S. monetary policy contrast with a risk of more interest rate cuts in the euro zone and aggressive monetary easing in Japan.
Rate differentials between 10-year Treasuries and similar dated German Bunds have moved in favor of the former, with spreads at their highest since April 2010.
Analysts at Morgan Stanley, who recently recommended selling the euro with a target of $1.28, have lowered their entry level for the trade to $1.3180. A break below the 200-day moving average would be a bearish signal, they said.
The higher-yielding Australian dollar, which is sensitive to concerns about growth in China, was down 0.25 percent at $0.9189, near an earlier 33-month low of $0.9143.
A recent spike in interbank borrowing costs have raised fears that stress in China's banking system could weigh on already slowing growth.
(Additional reporting by Anirban Nag; editing by Ron Askew)
(c) Copyright Thomson Reuters 2013. Check for restrictions at: http://about.reuters.com/fulllegal.asp