* Dollar hovers near 5-day high vs euro, gains modestly vs yen
* Focus continues to shift back to Fed as yuan gyrations peter out
* Pound retreats from 2-wk high, cautious ahead of inflation data
By Shinichi Saoshiro
TOKYO, Aug 18 (Reuters) - The dollar held firm against its peers on Tuesday, as focus shifted back to the prospects of interest rate hikes by the Federal Reserve amid receding concerns that last week's devaluation of China's yuan could spark a global currency war.
The euro stood within reach of a five-day low of $1.1063 plumbed overnight, and was last trading at $1.1073 EUR= .
The dollar gained modestly to 124.43 yen JPY= , continuing to pull away from a 12-day low of 123.79 struck last week when Beijing's surprise move dented expectations of the Fed raising rates in September.
China's central bank has since reined in the yuan's slide, soothing anxiety of further devaluation - a scenario markets feared could stoke worldwide disinflation and lead to a global currency war.
The relative calmness in yuan trading has allowed markets to focus back on when the Fed could begin hiking interest rates.
The dollar took a knock after a New York Federal Reserve survey released overnight showed manufacturing activity in New York state plunged in August to its weakest level since 2009. ID:nN9N10A01R
But underlying sentiment towards the dollar remained positive.
"The New York Federal Reserve data was not a positive one but employment and prices remain the key points towards a potential rate hike," said Shinichiro Kadota, chief Japan FX strategist at Barclays (LONDON:BARC) in Tokyo.
The dollar also managed to shake off a relatively steep drop in U.S. two-year and 10-year Treasury yields that occurred in the wake of manufacturing survey.
"The focus remains on the Fed, including what it might or might not do in the wake of China's yuan move, and the dollar took the yield declines in stride," Kadota at Barclays said.
Sterling slipped slightly to $1.5578 GBP=D4 . It reached a two-week high of $1.5690 overnight after comments from Bank of England policymaker Kristin Forbes reinforced expectations of an impending rate hike, but has pulled back on caution ahead of inflation data due later in the session.
Analysts said British inflation may be forecast to remain soft in the short term, but many - including the BoE - expect it to climb in coming months as the economy and wages pick up. ECONGB
The Australian dollar edged down 0.1 percent to $0.7365 AUD=D4 but was still comfortably above a six-year low of $0.7127 hit last week when the yuan's plunge churned the currency markets.
(Editing by Shri Navaratnam)