Dollar steady, confusion over US stance on China investment caps upside

By Shinichi Saoshiro

TOKYO (Reuters) - The dollar was steady against its rivals on Thursday, though it failed to build on overnight gains amid conflicting signals from Washington on a proposal to restrict Chinese investment as the bitter U.S.-China trade row kept financial markets on edge.

Demand stoked by the looming half year-end was seen supporting the dollar, which managed to defy lower U.S. yields and a slide in Wall Street shares.

The dollar index against a basket of six major currencies stood steady at 95.257 after rallying 0.65 percent the previous day.

The greenback advanced after U.S. President Donald Trump said on Wednesday he will use a strengthened national security review process to thwart Chinese acquisitions of sensitive American technologies, a softer approach than imposing China-specific investment restrictions. [nL1N1TT0EE]

There was, however, some confusion about Washington's intentions - with U.S. shares making an about turn and dropping - after White House economic adviser Larry Kudlow said in an interview on Fox Business Network later on Wednesday that Trump's announced plan did not indicate a softened stance on China.

Treasury Secretary Steven Mnuchin had favored a more measured and global approach to protecting U.S. technology, using authority approved by Congress, while White House trade adviser Peter Navarro, the administration's harshest China critic, had argued for China-specific restrictions. [nL1N1TR1RJ]

"The dollar has managed to stay buoyant despite a drop in Treasury yields and risk-off in U.S. stocks due to half year-end flows, which involves U.S. investors buying back the dollar," said Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo.

"It remains to be seen how long flow-driven bids can support the dollar. Headlines on trade issues will continue to dictate direction once such flows subside."

The dollar was 0.15 percent lower at 110.08 yen . The currency rose to 110.49 the previous day before pulling back slightly following comments by Kudlow on Trump's investment restriction plans.

The euro was a shade higher at $1.1561 after shedding 0.8 percent overnight. Concerns over political complications in Germany are expected to be a drag on the single currency.

The Australian dollar was on the defensive amid the lingering U.S.-China trade tensions. The Aussie was little changed at $0.7341 after retreating 0.7 percent the previous day, when it plumbed a 1-1/2-year trough of $0.7323.

(Editing by Shri Navaratnam)