* Dollar index off 3-1/2 month highs
* Eyes on Treasury auctions, Fed meeting
* Risk currencies rise
* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E (New throughout, updates prices, market activity and comments)
By John McCrank and Ritvik Carvalho
New York, March 9 (Reuters) - The dollar dipped on Tuesday, easing off its 3-1/2 month high as U.S. Treasury yields stabilised, allowing room for riskier currencies such as the pound, Australian dollar and Kiwi dollar to make gains.
The index that measures the save-haven dollar's strength against a basket of other currencies was 0.3% lower, at 92.081, after hitting a 3-1/2-month high of 92.506 during Asian trading hours =USD .
U.S. 10-year Treasury bond yields US10YT=RR eased to 1.52% after hovering near 13-month highs of 1.613% in the prior session on expectations of a faster-than-expected economic rebound and possible inflation, as President Joe Biden's $1.9 trillion coronavirus aid package moved forward. saw yields give back some ground after we had some soothing remarks from Treasury Secretary Janet Yellen downplaying prospects of runaway inflation," said Joe Manimbo, senior market analyst at Western Union Business Solutions.
On Monday, Yellen said Biden's aid package would fuel a "very strong" U.S. economic recovery, and that there are tools to deal with inflation if the economy runs too hot. are wary yields could rise further this week as the market digests a $120 billion auction of 3-, 10-, and 30-year Treasuries, especially after last week's soft auction and a 7-year note sale that saw a spike in yields.
There is also U.S. inflation data due on Wednesday and Friday.
"Stability is likely to remain the theme of the day ahead of the UST auctions and the US inflation release tomorrow, which are the near-term risks for FX markets," ING strategists Chris Turner, Francesco Pesole and Petr Krpata said in a daily note.
Commodity-linked currencies benefited from the pull-back in yields, with the Australian dollar AUD= gaining 0.71% to $0.7703 and New Zealand dollar NZD= gaining 0.27% to $0.7747.
The economic outlook has brightened globally as COVID-19 vaccine rollouts speed up in some countries and also due to the U.S stimulus package, the Organisation for Economic Cooperation and Development said, hiking its forecasts. euro EUR=EBS rose 0.38% to $1.18900 and sterling GBP=D3 gained 0.46% to $1.3881.
Looking forward, traders are focused on the U.S. Federal Reserve's two-day meeting next week. Expectations are low that the central bank will announce major policy changes after Chair Jerome Powell last week did not express concern about rising bond yields.
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