* Benchmark US yields edge up, support dollar
* Dollar index on track for best month since Oct. 2018
* Euro down 1.2 pct in March, yen up 0.5 pct in month
* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh
By Daniel Leussink
TOKYO, March 29 (Reuters) - The dollar was poised on Friday for its strongest gain in five months as investors responded positively to a bounce in U.S. Treasury yields and as some of its rivals were hit by dovish signals from their own central banks.
With many currencies on the defensive, the dollar has weathered a decline in benchmark Treasury yields to a 15-month low. Against a basket of key rival currencies, the U.S. currency was a shade higher at 97.217.
The index was on track for a more than one percent rise in March, its best monthly performance since gaining 2.1 percent in October last year. It has risen 1.5 percent from a near two-month low of 95.74 brushed on March 20.
The dollar held strong even as data overnight showed the U.S. economy slowed more than initially thought in the fourth quarter of last year.
U.S. gross domestic product increased at a 2.2 percent annualised rate, the Commerce Department said on Thursday, down from the initial estimate of 2.6 percent.
The euro and sterling have fallen this week as yields affecting the currencies have plunged, Daiwa Securities’ senior currency strategist Yukio Ishizuki said.
“It feels like the impact of the decline in yields in those markets was larger,” Ishizuki said.
“Though U.S. yields have dropped, investors seem to have sold currencies from markets about which they have the biggest worries about the state of the economy. That seems to have lifted the dollar,” he added.
The euro was a tad higher at $1.1228 but remained down about 1.2 percent for the month in the wake of sliding yields and fears of a prolonged economic slowdown hitting the euro zone.
The single currency has also been weighed down by speculation the European Central Bank will introduce a tiered deposit rate, providing a sign that policymakers plan to keep interest rates low for longer.
Sterling licked its wounds on Friday, last trading up 0.2 percent at $1.3065 after sinking more than 1 percent overnight as the prospects for a swift agreement on Brexit faded.
Against the yen, the dollar tacked on a tenth of a percent to 110.77 yen. That put it on track for a 0.5-percent loss against the Japanese currency in March.
On Friday, official data showed Japan’s industrial output rose 1.4 percent in February from the previous month, up for the first time in four months, though that came after a sharp 3.4 percent slump in January.
The country’s jobless rate fell in the same month to 2.3 percent, underscoring a tight labour market despite tepid wage gains and inflation.
Investors will be focused on developments in the U.S.-China trade talks on Friday.
“Investors are hoping for some signs of progress to bolster sentiment, although indications from the U.S. are that this will now be a long process,” said Nick Twidale, chief operating officer at Rakuten Securities Australia.
“Expect more risk off trade conditions if this looks set to be another step in a lengthy process,” he said in a note.
China will sharply expand market access for foreign banks and securities and insurance firms, especially in its financial services sector, Premier Li Keqiang said on Thursday, as U.S. officials arrived in Beijing for trade talks.
Earlier, sources told Reuters that China has made proposals in talks with the United States on a range of issues that go further than it has previously.
Increased risk appetite helped lift the Australian dollar , with the Aussie last advancing a sixth of a percent to $0.7086.
Market participants will also be watching Federal Reserve policymakers scheduled to speak later in the day.
The 10-year U.S. Treasury note yield edged up to 2.405 percent, extending its rise after coming off a 15-month low of 2.340 percent touched overnight. (Editing by Shri Navaratnam and Darren Schuettler)