* Dollar index rises towards 2019 high
* Pound plunges vs euro, dollar
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh(Adds context, chart, updates prices)
By Olga Cotaga
LONDON, Aug 20 (Reuters) - The euro hovered near a two-weeklow against the dollar on Tuesday as higher Treasury yields theday before boosted the U.S. currency. Political uncertainty inItaly also held the euro back.
Yields on U.S. benchmark 10-year government bondspulled away from three-year lows on Monday, helpedin part by the prospect of Germany ditching its balanced budgetpolicy and China providing more economic support measures.
Gains also came after Boston Fed President Eric on Mondaycriticized further rate cuts by the Federal Reserve, as well asfrom a Trump administration decision to extend a temporarylicense for Chinese telecoms producer Huawei, analysts said.
Market focus is likely to shift now to the annual symposiumof global central bankers that begins on Friday at Jackson Hole,Wyoming, but analysts doubt that will limit demand for dollars.
"Ahead of the Jackson Hole summit later this week, thereseems little reason for the dollar to weaken," said Lee Hardman,currency analyst at MUFG.
The Treasury yield curve inverted last week, a signal ofimpending recession that sent alarms through financial markets.The curve of two-year and 10-year Treasury yields remainedsteeper on Tuesday.
The dollar index was flat at 98.375 after earlierrising to a two-and-a-half-week high of 98.40. It reached its2019 high of 98.932 at the beginning of the month.
The euro was also flat at $1.1078, but not farfrom Friday's $1.1066 low, amid concern over politicaldevelopments in Italy. Against the Swiss franc, the euro wasdown by 0.2% at 1.0855, near the two-year low of1.0836 it reached last week.
In Italy, Prime Minister Giuseppe Conte will addressparliament at 1300 GMT on Tuesday to defend his record. He mightresign immediately afterwards, or he might wait for a formalvote to make it clear he is being unseated by the League. A votehas not been scheduled and there is widespread uncertainty overhow the political turmoil will end.
Deputy Prime Minister Matteo Salvini pulled the plug on theruling coalition earlier this month, hoping to trigger earlyelections that would probably see him named prime minister.
"The possible success of the no-confidence vote in Italytoday could push euro/dollar towards and even below thepsychological 1.1000 level today," said Chris Turner, head offorex strategy at ING.
Declines are unlikely to persist, he said, "because thenegative spillover into the euro from periods of politicaluncertainty in Europe has been somewhat limited over the pastyear."
Elsewhere, a stronger dollar pushed the offshore Chineseyuan lower, matching a six-day low of 7.0770. The offshore yuanwas last trading neutral at 7.0702.
The pound was down by 0.5% both against the dollar and theeuro, last at $1.2076 and at 91.77 pence against theeuro.
British Prime Minister Boris Johnson made new waves bywriting to European Council President Donald Tusk on Monday topropose replacing the Irish backstop with a commitment to put inplace alternative arrangements by the end of a post-Brexittransition period.
Johnson will meet both French President Emmanuel Macron andGerman Chancellor Angela Merkel during the week and is alsoplanning to meet Irish Prime Minister Leo Varadkar in September.
(Reporting by Olga Cotaga; editing by Larry King)