* Risk sentiment in Asia improves after Wall Street rally
* Dollar up vs yen, euro as Treasury yield pull away from lows
* News GPIF may raise foreign asset holdings also helps dollar
By Shinichi Saoshiro
TOKYO, Oct 20 (Reuters) - The dollar gained on Monday after upbeat data restored some calm to the financial markets, prompting equities to rally back from deep losses and triggering a rise in Treasury yields.
The greenback got a further lift against the yen after reports that Japan’s $1.2 trillion Government Pension Investment Fund (GPIF) could boost foreign asset holdings, seen spurring demand for foreign currencies.
On Friday, data showed U.S. consumer sentiment come in stronger than expected, restoring some faith in the U.S. economy and calming nerves after a week that saw Wall Street buffeted and Treasury yields fall sharply on global growth concerns.
Taking tips from Friday’s rebound on Wall Street, Tokyo’s Nikkei, which hit a five-month trough on Friday, surged 2.6 percent.
The dollar was up 0.2 percent at 107.18 yen, putting further distance between a five-week low of 105.90 hit the previous week.
The two-year U.S. Treasury yield, often correlated to the dollar’s performance, had risen to 2.21 percent from a 17-month trough of 1.865 percent reached last week.
“The dollar could extend its gains to the mid-107 yen level if equity market sentiment in Asia and Europe improve. The GPIF news is also rare as it touches on figures related to foreign asset allocations and could be leading to further selling of the yen,” said Masafumi Yamamoto, a market strategist for Praevidentia Strategy in Tokyo.
The euro lost 0.2 percent to $1.2740, pulling away from a three-week peak of $1.2887 scaled last week.
The dollar index .DXY, which measures the greenback against a basket of six major currencies, rose 0.2 percent to 85.287 after dropping to a three-week trough of 84.472.
Commodity currencies, sensitive to perceived shifts in global demand, also fared better as pessimism over the economy was tempered.
The Australian dollar edged up 0.1 percent to $0.8757.
Its New Zealand counterpart climbed 0.3 percent to $0.7939 . (Editing by Eric Meijer)