* Dollar bruised by lacklustre US data, China yuan surge
* Sharp drop in Treasury yields removes support for dollar
* Dollar index on track to end the week down 0.8 pct
By Shinichi Saoshiro
TOKYO, Jan 6 (Reuters) - The dollar tottered at three-week lows against a basket of currencies on Friday after it suffered a swift evaporation of bullish momentum in the wake of a jump in the Chinese yuan.
Traders are bracing for further turbulence as they await the closely-watched U.S. jobs report due later in the session.
The dollar index against a basket of major currencies was little changed near 101.300, its lowest since Dec. 14. It was on track to lose 0.8 percent on the week.
The index, which had set a 14-year high of 103.820 just three days ago, was hit overnight by lacklustre U.S. data and a surge in the yuan which some traders suspect was orchestrated by China to shake out large short positions against the currency.
As China works to stem capital flows and stabilise the currency ahead of Donald Trump’s inauguration as U.S. president and the Lunar New Year, the offshore yuan has risen to a two-month high against the dollar in nearly two months and marked the largest two-day rise since its inception in 2010.
“The yuan surge is the biggest catalyst for the dollar’s slide. The dollar weakened as the yuan’s slide amid capital control concerns is reminiscent of last January, when the yuan fell under similar circumstances,” said Shin Kadota, chief Japan FX strategist at Barclays in Tokyo.
“The global economy looks to be in better shape compared to a year ago so the risk-off trend could be limited. But China-related headlines appear to have given participants to adjust positions which had excessively favoured the dollar.”
China is expected to report December and full-year 2016 foreign exchange reserves on Saturday amid concern over the speed at which it is burning through its dollar cash pile in defence of the yuan.
The data is expected to show reserves precariously perched just above the critical $3 trillion level at end-December, the lowest level since February 2011, according to a Reuters poll.
The greenback was down 0.2 percent at 115.150 yen after falling 1.6 percent overnight.
The euro was steady at $1.0608 after rallying 1.3 percent the previous day to pull away from a 14-year trough of $1.0340 set on Tuesday.
The dollar has lost support from U.S. Treasury yields, which has pulled back sharply past three days from their highest levels since September 2014 marked in December as investors grew risk-averse amid uncertainty about the incoming Trump administration.
Treasury yields declined further on Thursday as the ADP National Employment Report showed that U.S. private employers added 153,000 jobs last month, below economists’ expectations for a gain of 170,000. The 10-year Treasury note yield was at 2.353 percent on Thursday, having come down from the peak above 2.640 percent reached last month.
Investors are now focused on Friday’s U.S. non-farm payrolls report in which economists expected jobs gains of 178,000 in December.
The Australian dollar was flat at $0.7339 after gaining 0.7 percent overnight, when it touched a three-week high of $0.7356.
The New Zealand dollar traded a shade lower at $0.7020 after climbing to a three-week peak of $0.7040. (Editing by Kim Coghill)