* Major currencies keep to wafer-thin range in Asia
* Dollar camped around 117.50 yen, $1.0440 per euro
* Further dollar gains expected over time as yields diverge
* Italian govt approves rescue package for troubled banks
By Wayne Cole
SYDNEY, Dec 23 Little was stirring in currency
markets on Friday as dealers bedded down for the Christmas
holidays, though the mood remains bullish for more dollar gains
in the New Year as yield spreads widen in its favour.
With Tokyo already absent, the dollar was dozing at 117.50
yen after reaching 118.66 yen a week ago, its strongest
since early February. It was also almost back to where it
started the year having been as low as 99.00 in June.
The single currency was a shade firmer at $1.0440,
having rebounded only modestly from a nearly 14-year low of
$1.0350 set earlier in the week.
The dollar index was marginally lower at 103.04 and
within striking distance of the week's 103.65 peak. So far on
Friday, the index had moved a whole 9 ticks.
Data out on Thursday had shown U.S. economic growth was
quicker than initially forecasted in the third quarter, but
disappointing numbers on personal spending and income pointed to
a slowdown in the present quarter.
The dollar rally has been fuelled in part by bets that the
incoming Trump Administration and a Republican-controlled
Congress would slash taxes and boost debt-funded spending,
pushing up inflation and bond yields.
Currently two-year U.S. paper offers a plump
premium of 198 basis points over German debt, up from 144 at the
start of November and near the widest since 2005.
"Yields spreads should attract more capital into the USD,"
said Ray Attrill, global co-head of FX at NAB.
"Monetary policy divergence is set to be more pronounced in
2017 with Fed tightening while BoJ, ECB and BoE further expand
their balance sheets," he added. "FOMC risk is skewed to the Fed
doing more, not less, than the 60 basis points of tightening
Indeed, the Bank of Japan and European Central Bank are
actively working to keep their short-term yields deep in
negative territory, widening the gap even further.
Yet Attrill also saw reasons why the dollar might not rise
as far as some bulls expect.
He argued the dollar rally already fully reflected the
widening in spreads since Trump's election and a further sharp
increase in U.S. yields could start to weigh on stocks and the
economy, drawing resistance from the Federal Reserve.
"We aren't expecting 10-year US yields to make a sustained
move above 2.75 percent in 2017. This is more consistent with a
3-5 percent rise in the USD than 10 percent."
Elsewhere, the Italian government approved a plan for the
rescue of Monte dei Paschi di Siena after the world's
oldest bank failed to win backing from investors.
If the package is seen as credible it could lessen one drag
on euro sentiment.
(Reporting by Wayne Cole; Editing by Eric Meijer & Shri