* Dollar index pulls away from 6-1/2-month lows
* Rise in U.S. Treasury yields supports the dollar
* Focus shifts from U.S. politics to Fed policy for time being
* Fed’s meeting meets due later in session awaited for cues (Updates prices, adds details and quotes)
By Shinichi Saoshiro
TOKYO, May 24 (Reuters) - The dollar held firm on Wednesday, having rebounded from 6-1/2-month lows against its major peers helped by a rise in U.S. Treasury yields, while the yuan eased after Moody’s cut its sovereign rating on China due to concerns over the country’s soaring debt.
The dollar index held steady against a basket of six currencies at 97.321 after bouncing 0.4 percent the previous day.
It managed to pull away from the 96.797 level plumbed on Monday, its lowest since Nov. 9, when concerns over U.S. politics stemming from the Trump election campaign’s suspected links with Russia took a toll on the greenback.
The dollar was boosted as U.S. debt prices fell, with the benchmark 10-year Treasury note yield climbing 3 basis points overnight and putting some distance between the one-month trough reached last week in a bond-buying flight to safety.
“The rise in Treasury yields is supporting the dollar. It appears that speculative buying of Treasuries has run its course, with Trump concerns and geopolitical risks no longer fresh news,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.
The dollar was firm at 111.795 yen after a bounce to 111.995 yen, its highest in a week.
The U.S. currency also managed to halt its slide against the euro, which had enjoyed a bull run this month on factors including an ebb in French political concerns, upbeat euro zone data, and a widening German-U.S. government debt yield spread.
The euro was little changed at $1.1191, nudged away from a 6-1/2-month high of $1.1268 scaled the previous day.
Investors are now turning their focus towards the Federal Reserve’s monetary policy stance. Minutes of the Fed’s latest policy-setting meeting are set for publication at 2 p.m. eastern time (1800 GMT) on Wednesday.
The market already expects the Fed to raise interest rates in June, but given the greenback’s recent weakness, dollar bulls are expected to welcome any hawkish hints by the central bank.
MOODY‘S DOWNGRADES CHINA
Moody’s Investors Services on Wednesday downgraded China’s long-term local and foreign currency issuer ratings by one notch to A1 from Aa3, citing expectations that the financial strength of the world’s second-biggest economy would erode in the coming years.
China’s offshore yuan slipped in knee-jerk reaction but the overall response was limited. The yuan fell to 6.8901 per dollar , down by 0.1 percent, before pulling back to 6.8841 for a loss of about 0.05 percent.
The Australian dollar, sometimes used as a proxy of China-related trades, eased slightly but reaction to the downgrade was also relatively subdued. The Aussie was down 0.15 percent at $0.7466.
“Currencies are reacting quite calmly, as China is still seen to have enough reserve strength for further fiscal spending,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.
Elsewhere, the Canadian dollar stood steady at C$1.3518 per dollar after touching C$1.3457 overnight, its strongest in a month.
A rise in crude oil prices lifted the Canadian dollar. The focus is now on the OPEC meeting in Vienna on Thursday to see whether a deal to prolong output cuts can be struck.
The pound was nearly flat at $1.2965, with the market awaiting further developments in Britain’s suspended election campaign after the suicide bombing in Manchester. (Reporting by Shinichi Saoshiro; Editing by Eric Meijer and Jacqueline Wong)