* Aussie plummets vs dollar after weak third-quarter growth
* Yen dips 0.2 pct vs dollar, gives up some of the previous session’s gains
* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh
By Daniel Leussink
TOKYO, Dec 5 (Reuters) - The dollar trimmed some of its recent losses but remained under pressure on Wednesday, as an inversion in part of the Treasury yield curve raises concerns about a potential U.S. slowdown.
The Australian dollar slumped more than half a percent against the greenback as disappointing economic data further dimmed the chance of a rise in rates. The Aussie moved sharply off a four-month top of $0.7394 hit early in the week.
Investors were nervous over an inversion of the yield curve between three-year and five-year U.S. Treasury notes and between two-year and five-year notes which limited the dollar’s gains.
These were the first parts of the Treasury yield curve to invert since the financial crisis, excluding very short-dated debt.
“In the initial phase of the inversion of the yield curve markets are worried about whether there’ll be a recession,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.
“They react more aggressively to weak data than to strong data,” Yamamoto said. “I think the dollar can be in correction-mode in a yield-curve inversion environment.”
Against a basket of six key rivals, the dollar edged up 0.1 percent to 97.092, trimming this week’s losses to 0.2 percent. It was 0.6 percent off a 17-month peak of 97.693 touched on Nov. 12.
Interest rate hikes have sent short-dated yields higher, even as slowing economic growth expectations have kept longer-dated yields down.
The dollar has been under pressure since Federal Reserve Chairman Jerome Powell said last Wednesday that U.S. interest rates were nearing neutral levels, which markets interpreted as signalling a slowdown in the pace of rate hikes.
Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank, said there is proof that an inversion between three-month Treasury bills and 10-year Treasury notes precedes a recession.
The spread between three-month Treasury bills and 10-year Treasury notes was 50 basis points as of Tuesday, its smallest since Oct. 2007.
“The Federal Reserve may slow down the pace with which it hikes interest rates, but it won’t lower rates yet, so the likelihood there will be an inversion of these is low,” Sera said.
The euro edged down 0.1 percent to $1.1328 after also slipping 0.1 percent during the previous session.
The Australian dollar shed 0.7 percent to $0.7290 after Australia reported positive but lower-than-expected third-quarter economic growth of 0.3 percent. Downward revisions to the past meant annual growth slowed to just 2.8 percent.
The Aussie, often viewed as a barometer of Chinese growth, had risen early in the session after China’s Commerce Ministry said in a statement that a Chinese trade and economics delegation had held a successful meeting with the United States.
The ministry said the Chinese side would work to implement specific issues agreed upon as quickly as possible, and was confident they would be implemented.
Against the yen, the dollar rose 0.2 percent to 112.97 yen, clawing back some of the previous session’s losses, when it booked its biggest one-day drop since July 20.
On Tuesday, the greenback shed nearly 0.8 percent against the yen, which acts as a safe haven in times of geopolitical and financial turmoil as Japan is the world’s biggest creditor nation.
Wall Street’s declines this week pushed up implied volatility, as measured by the CBOE volatility index. Volatility in the yen has however been muted, with expectations of future implied volatility priced into one-month options falling below 6 percent to levels last seen in January.
U.S. stock and bond markets will be closed on Wednesday for a national day of mourning for former U.S. President George H.W. Bush, who died on Friday. (Editing by Eric Meijer and Jacqueline Wong)