* Dollar index edges up towards 4-month highs
* 10-yr US yield pokes above 3 pct for first time sinceearly 2014
* Widening yield spreads seen supporting dollar long term
* Kiwi extends drop, at its lowest since early January(Updates throughout)
By Shinichi Saoshiro
TOKYO, April 25 (Reuters) - The dollar inched up onWednesday, approaching its recent four-month high as the U.S.10-year bond yield poked above 3 percent to hit its highestlevel since early 2014.
The dollar index against a basket of six major currenciesrose 0.1 percent to 90.844. It had climbed overnight to91.016, highest since Jan. 12, before a slide in Wall Streetstocks tempered investor risk appetite and slowed thegreenback's rally against its peers, notably the yen.
The greenback had risen without pause through much of thepast week as U.S.-China trade conflict woes receded and allowedthe market to turn its attention back to dollar-supportivefundamentals, notably the surge by U.S. yields.
"Revived expectations that the U.S. economy would performwell thanks to tax cuts and increased fiscal spending aresupporting the dollar," said Shin Kadota, senior strategist atBarclays in Tokyo.
"Yields rose and equities slipped before but the situationis a little different, as expectations towards the U.S. economyare now stronger," Kadota said.
Tuesday's data on U.S. consumer confidence and new homesales, both stronger in April, bolstered the case that theworld's biggest economy will continue to grow in the comingquarters.
The U.S. currency was 0.1 percent higher at 108.900 yen. It pulled back from a 2-1/2-month high of 109.200 setthe previous day when the S&P 500 and the Dowposted their biggest declines since April 6.
While the weakening by equities was supportive for the yen,often sought when stocks fall due to its perceived safe-havenstatus, analysts said the dollar was still likely headed forfurther gains in the longer-term.
"At first glance, the situation is similar to February, whenU.S. yields rose sharply and equities tumbled. But thedifference this time is that the response by equities is moremeasured, and yen demand stemming from 'risk off' is not nearlyas strong," said Yukio Ishizuki, senior currency strategist atDaiwa Securities in Tokyo.
"The market's attention is firmly back on interest ratedifferentials and this is likely to keep supporting the dollargoing forward."
The spreads between U.S. yields and those of its Europeanand Japanese counterparts have widened significantly amiddiverging monetary policy expectations.
This week the gap between U.S. and German 10-year governmentbond yields has hit its widest in 29 years and the U.S.-Japanese10-year yield spread reached its broadest in nearly 11 years.
The 10-year Treasury yield extended itsovernight rise and touched the four-year peak of 3.009 percent,reflecting the durability of the U.S. economic expansion.Accelerating inflation and concerns about increasing debt supplyhave also driven yields higher.
Wall Street dropped sharply on Tuesday as warnings bybellwether companies of higher costs stemming from the surge inyields reverberated.
The pound was effectively flat at $1.3981. Itplumbed a one-month low of $1.3919 on Tuesday before rebounding0.3 percent, seen to have been supported in part by news about apossible takeover of British pharmaceutical company Shire Plcby Japanese drugmaker Takeda Pharmaceutical Co.
The Australian dollar shed 0.2 percent to $0.7586and in close reach of a four-month trough of $0.7576 plumbed theprevious day.
The New Zealand dollar extended losses and dipped to $0.7102, its weakest since Jan. 4.
The kiwi, on track for its seventh session of losses, hasslumped 2 percent this month.
The currency has faced pressure from a resurgent dollar andalso by increasing expectations that the Reserve Bank of NewZealand would hold off from raising rates through 2018 afterdata last week showed the country's inflation nearing the bottomof the central bank's target.(Reporting by Shinichi SaoshiroEditing by Sam Holmes)
