* U.S. 10-year Treasury yield approaches 3 percent
* Euro, down 0.6 percent, faces big week with ECB meeting
* Dollar helped by bond yields, positive trade sentiment
* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh (New throughout, updates prices, market activity and comments)
By Kate Duguid
NEW YORK, April 23 (Reuters) - The U.S. dollar rallied to a seven-week high on Monday as investors bought the greenback on the rise in the 10-year U.S. Treasury yield toward the psychologically important 3 percent level, leaving the euro and yen lower.
The 10-year yield hit its highest in over four years at 2.998 percent, driven by worries about the growing supply of government debt and accelerating inflation as oil and commodity prices climb.
The strong dollar also reflected an improved outlook on trade. U.S. Treasury Secretary Steven Mnuchin said on Saturday he may travel to China, a move that could ease trade tensions between the world’s two largest economies.
A stronger dollar “was the trend overnight, mostly due to positive sentiment on trade,” said Sireen Harajli, currency strategist at Mizuho in New York.
Rising U.S. bond yields have not always fed through to a higher dollar in 2018 as U.S. political uncertainty and geopolitical tensions have sometimes caused a breakdown between interest rates and currency performance.
But with the 10-year Treasury yield closing in on 3 percent and the gap between U.S. and German government bond rates at a 29-year high, the dollar was bought across the board.
Against a basket of currencies the dollar index rose 0.6 percent to 90.849, its highest level since March 1.
The euro fell by 0.6 percent to a 2-1/2 week low of $1.2213 , not helped by a survey showing business activity in April stabilizing across the euro zone.
The euro had enjoyed a strong rally until February before finding itself stuck in a trading range with the dollar after the European Central Bank cautioned investors expecting it to raise rates sooner than expected.
“I don’t think there’s going to be any change in policy this week. I think the tone might be a little more dovish, especially on the Euro. The last ECB minutes revealed a little bit more concern on the currency side,” said Harajli
The ECB holds its monetary policy meeting on Thursday.
The rise in bond yields also weakened Asian emerging market currencies versus the dollar, with the Chinese yuan and Korean won down and the Indonesian rupiah hitting a two-year low of 13,889 per dollar.
The Australian dollar skidded to its weakest since Dec. 13, falling to as low as $0.7613, while sterling and New Zealand dollars also dropped.
The yen slumped 0.7 percent to 108.48 yen per dollar, its weakest since Feb. 13. (Reporting by Kate Duguid and Tommy Wilkes; Editing by David Gregorio)