Dollar firms, higher yields support as markets ponder Fed outlook

By Lisa Twaronite

TOKYO (Reuters) - The dollar firmed on Tuesday as a recovery in crude oil prices lifted equities and U.S. Treasury yields, and lessened demand for the safe-haven yen.

Oil prices hit six-month highs overnight on fears about global supply outages, and on a more bullish assessment from long-time bear Goldman Sachs. [O/R]

The yield on benchmark 10-year notes stood at 1.7533 percent in early Asian trade, compared to its U.S. close of 1.753 percent, and up from 1.71 percent on Friday.

The dollar index, which tracks the U.S. currency against a basket of six rivals, was nearly flat at 94.547 , within sight of a three-week high of 94.845 hit on Friday.

The dollar edged up to 109.07 yen , while euro bought 123.40 yen , up slightly.

The euro was slightly lower at $1.1316 .

The British pound added 0.4 percent to $1.4447 after dropping to a three-week low of $1.4333 in the previous session ahead of Britain's June 23 referendum on European Union membership.

The "remain" camp was ahead of "leave" by eight points in the latest ICM telephone poll released on Monday.

On the U.S. data front, New York's Empire State survey was weaker than expected, coming in at its lowest level since February. But few investors used it as an excuse to sell the greenback.

"Dollar bulls weren't excited by Friday's strong retail sales report - which showed the largest rise in consumer spending in more than a year and today dollar bears found no reason to jump into fresh short positions after one soft manufacturing report," Kathy Lien, managing director at BK Asset Management, said in a note to clients.

"Until some piece of data significantly alters the market's expectations for Fed policy, we expect the dollar to remain confined to its recent range against the euro and Japanese yen," she said.

Richmond Fed President Jeffrey Lacker told the Washington Post in an interview published on Monday that the central bank should consider raising rates at its June meeting. But Lacker is not a voting member of the Fed's policy-making board this year, and markets have all but priced out a move next month.

Fed funds futures rates show investors see only a 4 percent chance the Fed will raise interest rates at its upcoming June policy meeting and market pricing indicates an increase will not occur until early 2017, according to CME Group's FedWatch tool. But many investors believe the next hike will come later this year.

The higher crude oil prices gave the Australian dollar a lift. The Aussie was trading at $0.7283 , pulling above a two-and-a-half month low of $0.7236 plumbed in the previous session.

(Editing by Shri Navaratnam)