* Chinese yuan falls to six-month lows
* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, June 26 (Reuters) - The dollar rebounded from early lows and rose nearly half a percent against its rivals on Tuesday as escalating concerns of a trade conflict between the world’s two biggest economies pushed markets to unwind their bets in high-yielding currencies.
With tensions rising, the Chinese currency weakened to a fresh six-month low as expectations grew that Beijing will let the yuan weaken more in coming days to soften the impact of trade tariffs by the United States.
“A lot of the large bets in currency markets such as long euros or short Swiss francs have been broadly unwound and we are in a very headline driven environment,” said Paul Bednarczyk, head of G10 FX at Continuum Economics in London.
The dollar rebounded smartly against a basket of currencies from a one-week low hit in Asian trade to rise 0.3 percent on the day at 94.55. On a monthly basis, the dollar is set for a third consecutive month of gains.
Risk appetite was broadly muted with relatively safe-haven currencies such as the Japanese yen and the Swiss franc firmly supported, while high-yielding currencies such as the Australian dollar were on the back foot.
With the Chinese yuan in the offshore market plumbing a fresh six-month low against the dollar, Asian currencies also came under selling pressure with a widely-tracked index following the performance of Asian currencies against the dollar down 0.3 percent on the day.
U.S. Treasury Secretary Steven Mnuchin said on Monday that coming investment restrictions from the department would not be specific to China but would apply “to all countries that are trying to steal our technology”.
However, that statement was contradicted by White House trade and manufacturing adviser Peter Navarro, who said that any investment restrictions proposed by the Trump administration would target China and not other countries.
The Chinese currency in the offshore market weakened 0.7 percent to 6.5811 yuan per dollar, its lowest level since late-December 2017.
“Currency markets are treading water at the moment because of the trade war concerns and in the near term we think the dollar may gain against the Chinese currency and other rivals,” said Alvin Tan, a currency strategist at Societe Generale in London.
The euro edged 0.3 percent lower at $1.1672, extending its recovery from its 11-month low of $1.1508 touched on Thursday.
Still, the single currency remains vulnerable to regional political instability as German Chancellor Angela Merkel faces pressure to deal with the migration issue that has divided Europe and threatened her own government.
“The ongoing political angst in Europe also has contributed to risk-off market sentiment,” said Kengo Suzuki, chief forex strategist at Mizuho Securities. (Reporting by Saikat Chatterjee; Additional reporting by Tomo Uetake in TOKYO; Editing by William Maclean and Andrew Heavens)