By Tom Westbrook and Harry Robertson
SINGAPORE/LONDON, Oct 9 (Reuters) - The euro was headed for a fifth straight weekly drop on Friday, though the selling streak lost momentum as France's beleaguered bond market stabilised and a fall in energy prices and US yields took the steam out of the dollar's rally.
The euro zone's currency hit a 17-month low of $1.1161 on Monday as investors worried about France's record public debt and the difficult political path to budget cuts, in contrast with a robust-looking
US economy and currency.
The euro has recovered some of the loss and was flat on Friday at $1.121, for a fall so far this week of 0.4% and a five-week drop of more than 3% on the dollar.
The euro steadied against its neighbouring currencies but was set for a 0.3% weekly fall against the pound after a 1.1% drop the previous week, when the selling in French bond markets was at its heaviest.
Global bond markets were calmer on Friday as oil prices fell after President Donald Trump said the US will not attack Iran before US midterm elections on November 3 and added that there had been productive talks with Tehran over the war.
Brent crude was down 1.5% to $102.60 a barrel, causing traders to trim their bets on central bank rate hikes - wagers that have helped drive up bond yields in recent months.
"The euro looks to be stabilising after falling sharply ... on the back of rising global yields and the increased concerns over the fiscal position in France," said Derek Halpenny, head of research at MUFG.
"We continue to see evidence of economic resilience in Europe that could help stabilise the euro at these lower levels," he said, pointing to a sharp upgrade in German growth forecasts on Thursday, which confirmed an earlier Reuters report.
DOLLAR RALLY PAUSES AS US YIELDS COOL
The dollar index was flat at 102.17, putting the brakes on recent gains, as US yields headed for a weekly fall. It hit its highest since April last year on Monday at 102.53.
Sterling was flat at $1.323, while the Australian dollar rose 0.3% to $0.698.
The yen headed for a fourth straight weekly drop, though moves in the last three of those weeks have been very small as it has steadied around 158 yen to the dollar.
The dollar was last up 0.2% against the Japanese currency at 158.26 yen.
Vishnu Varathan, head of Asia-Pacific macro strategy at Mizuho Securities in Singapore, said the dollar sat in a "precarious pole position, flattered by a dismal euro and yen".
Bond and currency traders will watch the French budget process closely in the coming months as the government attempts to reduce the deficit from around 5.4% of GDP, as well as announcements from leading presidential candidates such as the far-right Marine Le Pen ahead of an election next year.
French students blockaded schools and marched through cities on Thursday as a wave of protests about education conditions continued, highlighting the tricky balance for leaders between demand for social spending and leery markets.
(Reporting by Tom Westbrook in Singapore and Harry Robertson in London; Editing by Jamie Freed, Kim Coghill, Elaine Hardcastle and Kevin Liffey)
