Dollar dips, weighed down by sagging long-term U.S. yields

By Shinichi Saoshiro

TOKYO (Reuters) - The dollar dipped against its peers on Wednesday, weighed down as U.S. Treasury yields failed to rise despite increasing investor risk appetite in broader financial markets.

The dollar index against a basket of six major currencies was 0.05 percent lower at 93.896.

The index fell back from a one-week high of 94.165 overnight after a rally triggered earlier this week by a sagging euro stalled as long-term U.S. Treasury yields continued inching lower.

The greenback was a shade lower at 112.340 yen , after slipping overnight from a high of 112.705.

"The dollar should be getting more of a lift against the yen in this 'risk on' environment. But what is taking precedence is the adjustment of positions before the Thanksgiving and year-end holidays by participants, resulting in the covering of yen shorts," said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

Wall Street shares yet again rose to record highs on Tuesday, while Japan's Nikkei <.N225> climbed more than 1 percent early on Wednesday.

The ongoing flattening of the Treasury yield curve, which has capped long-term yields, is a further drag on the dollar, Daiwa's Ishizuki said.

The U.S. yield curve flattened to its lowest in a decade on Tuesday as investors price in the expectation that the Federal Reserve will continue to raise rates while the Treasury is seen increasing short-dated debt issuance. At the same time low inflation and global demand for yield has supported longer-dated debt. [US/]

The currency market showed little response to comments by Fed Chair Janet Yellen, who said late on Tuesday the central bank is "reasonably close" to its goals and should keep gradually raising U.S. interest rates to avoid the dual pitfalls of letting inflation drift below target for too long and driving unemployment down too far.

The euro was steady at $1.1740 after crawling away from a one-week low of $1.1712 brushed overnight when political impasse in Germany took a toll on the common currency.

The Australian dollar rose 0.1 percent to $0.7586 against the bogged down dollar, putting a bit of distance between a five-month trough of $0.7532 plumbed overnight on dovish-sounding Reserve Bank of Australia policy meeting minutes.

The New Zealand dollar gained 0.2 percent to $0.6844 after digesting a surprise increase in October domestic milk production.

(Reporting by Shinichi Saoshiro; editing by Richard Pullin)