Dollar stands tall as euro plumbs five-month low on Italian political uncertainty

By Shinichi Saoshiro

TOKYO (Reuters) - The dollar stood tall against a basket of currencies on Thursday, as the euro retreated to a five-month low on concerns the political developments in Italy could cause wider disruptions in the common currency bloc.

The euro was 0.05 percent higher at $1.1813 after sliding overnight to $1.1763, its lowest since Dec. 18.

Political uncertainty in Italy, where populist parties have jostled to forge a common platform in a bid to lead the next government, have been a major drag on the euro.

The common currency slid to the five-month low on reports that Italy's anti-establishment 5-Star Movement and anti-immigrant League may ask the European Central Bank to forgive 250 billion euros of debt as the parties worked to draft a coalition programme.

"The euro looks on track for further losses as market participants still appear to have more long positions on the euro to liquidate," said Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo.

"While the situation in Italy is a concern for currencies, the 5-Star Movement sees Britain struggle with its EU exit plan and is unlikely to pursue a similar agenda. The political fallout from Italy could be relatively well contained as a result."

For now the euro also faced pressure from a bullish dollar, which has been boosted this week as U.S. benchmark yields broke above the 3 percent threshold to a seven-year high.

The dollar index against a basket of six major currencies was a shade lower at 93.298 after rising on Wednesday to 93.632, its highest since Dec. 19.

The dollar was steady at 110.380 yen . A rise above 110.450 would take the greenback to its highest since Feb. 2 versus its Japanese peer.

The Australian dollar was little changed at $0.7514 after gaining 0.6 percent overnight, buoyed by a rise in prices of commodities such as copper.

Other commodity-linked currencies like the Canadian dollar also advanced as equities bounced back overnight from the previous day's losses caused by the spike in U.S. yields.

The loonie stood firm at C$1.2785 per dollar after gaining 0.67 percent on Wednesday. The commodity-linked currency is sensitive to movements in equity markets, which are seen as a key indicator of the prospects for global growth. [CAD/]

The New Zealand dollar traded at $0.6899 after managing to pull back the previous day from a five-month trough of $0.6851.

(Editing by Sam Holmes)