June 28, 2018 / 12:35 AM / 5 months ago

FOREX-Dollar steady, confusion over US stance on China investment caps upside

* Trump considers softer approach to US curbs on China investment

* Dollar index steady after gaining 0.65 pct overnight

* Half year-end investor flows also seen supporting dollar

By Shinichi Saoshiro

TOKYO, June 28 (Reuters) - The dollar was steady against its rivals on Thursday, though it failed to build on overnight gains amid conflicting signals from Washington on a proposal to restrict Chinese investment as the bitter U.S.-China trade row kept financial markets on edge.

Demand stoked by the looming half year-end was seen supporting the dollar, which managed to defy lower U.S. yields and a slide in Wall Street shares.

The dollar index against a basket of six major currencies stood steady at 95.257 after rallying 0.65 percent the previous day.

The greenback advanced after U.S. President Donald Trump said on Wednesday he will use a strengthened national security review process to thwart Chinese acquisitions of sensitive American technologies, a softer approach than imposing China-specific investment restrictions.

There was, however, some confusion about Washington’s intentions - with U.S. shares making an about turn and dropping - after White House economic adviser Larry Kudlow said in an interview on Fox Business Network later on Wednesday that Trump’s announced plan did not indicate a softened stance on China.

Treasury Secretary Steven Mnuchin had favored a more measured and global approach to protecting U.S. technology, using authority approved by Congress, while White House trade adviser Peter Navarro, the administration’s harshest China critic, had argued for China-specific restrictions.

“The dollar has managed to stay buoyant despite a drop in Treasury yields and risk-off in U.S. stocks due to half year-end flows, which involves U.S. investors buying back the dollar,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo.

“It remains to be seen how long flow-driven bids can support the dollar. Headlines on trade issues will continue to dictate direction once such flows subside.”

The dollar was 0.15 percent lower at 110.08 yen. The currency rose to 110.49 the previous day before pulling back slightly following comments by Kudlow on Trump’s investment restriction plans.

The euro was a shade higher at $1.1561 after shedding 0.8 percent overnight. Concerns over political complications in Germany are expected to be a drag on the single currency.

The Australian dollar was on the defensive amid the lingering U.S.-China trade tensions. The Aussie was little changed at $0.7341 after retreating 0.7 percent the previous day, when it plumbed a 1-1/2-year trough of $0.7323. (Editing by Shri Navaratnam)

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