* Dollar index set to post tiny losses for the week
* More trade tariffs could offset U.S. tax reform - BOFAML
* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, June 22 (Reuters) - The euro trimmed some early gains on Friday as concerns of a growing trade conflict between the world’s two biggest economies kept a lid on appetite for taking large risky bets.
In early trading, the single currency had rallied half a percent after stronger than expected French business activity in June raised hopes that concerns about a widening slowdown in the eurozone in the second quarter may be slightly overdone.
With Germany flash services PMI data also beating forecasts, the single currency briefly rose to the day’s highs at $1.1674.
Those gains were partially reversed as investors worried about the widening fallout of a trade war between the United States and China.
“Something which has been brewing in the background for the last few months has finally hit center stage and that is a key risk to markets,” said Gerard Fitzpatrick, CIO of EMEA at Russell Investments.
U.S. President Donald Trump threatened on Monday to hit $200 billion of Chinese imports with 10 percent tariffs if China retaliates against his previous targeting of $50 billion in import.
Bank of America Merrill Lynch strategists estimate that if Trump goes ahead with its threat that would be bigger than the individual tax cut from the U.S. tax reforms with wider impact on confidence and supply chains.
The dollar index edged from the day’s lows and was broadly flat on the day at 94.65. For the week it is set to post a tiny 0.1 percent loss.
Despite some softness going into the U.S. session, the single currency recouped some of the losses it sustained last week in the wake of the European Central Bank pushing back its expectations of its first rate hike by a few months.
For the week it is poised to register a 0.5 percent rise, breaking last week’s fall. The euro stood 0.3 percent higher on the day at $1.16380.
“There was a lot of euro selling in the last few weeks because of the Italian market selloff and German politics, but those concerns have vanished and we are now advising clients to hold on to their euro positions,” said Manuel Oliveri, a currency strategist at Credit Agricole in London.
Sentiment towards the euro was also boosted by a general increase in risk appetite across the board with Asian stocks up half a percent while high-yielding currencies such as the Australian dollar and the New Zealand dollar also posting chunky gains.
Against the yen, the greenback was little changed and was modestly higher at 110.14 yen, below a one-week high of 110.76 scaled the previous day amid lingering concerns over the trade dispute between the United States and China.
“The potential for all-out trade war, European political risks and emerging market volatility remain potent factors that should contain dollar/yen within the current range, though the lack of downside over the last week or so suggests stronger underlying demand,” wrote Robert Rennie, head of market strategy at Westpac.
Sterling last traded at $1.3284, building on from Thursday’s gains after Bank of England Chief Economist Andy Haldane unexpectedly joined the minority of policymakers calling for rates to rise to 0.75 percent, citing concerns about growing wage pressure.
Reporting by Saikat Chatterjee; Additional reporting by Shinichi Saoshiro in TOKYO; Editing by William Maclean