(Corrects verb tense in headline)
By Jiaxing Li
HONG KONG, Sept 29 (Reuters) - The dollar hovered near a two-month high on Tuesday as volatile oil prices and a rapid climb in Treasury yields lent support, although gains were limited as traders awaited US data this week for clues on the Federal Reserve's rate path.
The euro traded near its weakest level in three months at $1.1367 after the European Central Bank's chief signalled measured steps to quell inflation. Sterling was steady at $1.3248, also
not far from a three-month trough.
The dollar index, which measures the US currency against a basket of peers, was a touch higher at 101.2 and on track for a 1.8% advance this month, its best performance since June.
Oil prices crept back up with Brent crude futures last near $106 a barrel as markets doubted that renewed efforts to end the Iran war would get anywhere after US President Donald Trump rejected Tehran's ceasefire proposal.
Meanwhile, a deepening selloff in U.S. Treasuries pushed yields to new peaks, with the 10-year benchmark at its highest since 2007 and the 30-year at its highest since 2004. The monetary policy-sensitive two-year yield also rose to its highest in more than two years, closing in on 5%.
The dollar is making limited gains for now as investors awaited US data later in the week, while markets have gradually grown desensitized to oil moves and a global bond sell-off has neutralized the boost to the dollar from higher Treasury yields, said Joseph Capurso, head of foreign exchange at the Commonwealth Bank of Australia.
"We're more likely to get stronger US economic data which shows that the US economy is exceptional, and I think that's going to help to push up US interest rates compared to elsewhere, and help push up the US dollar."
US data releases later in the week, including the PCE price index on Wednesday and nonfarm payrolls on Friday, are both expected to support the case for further Fed rate hikes.
Markets are now seeing a more than 70% chance of a rate hike from the Federal Reserve at the end of October, up from 57% a week ago, according to CME Group's FedWatch tool.
The Reserve Bank of Australia is expected to raise the key rate later on Tuesday, and the Australian dollar and the kiwi both traded 0.1% lower at $0.7013 and $0.5660, respectively.
The Japanese yen weakened a touch to 157.40 per dollar, giving back a chunk of Monday's gain after Japan's top currency diplomat Atsushi Mimura said markets should heed the "very clear" warning Tokyo and Washington delivered last week on the yen, leaving traders on edge over the risk of intervention.
Elsewhere, the offshore yuan was little changed at 6.71 per dollar after Trump and Chinese President Xi Jinping's three-day summit last week yielded limited outcomes.
(Reporting by Jiaxing Li in Hong Kong; Editing by Kevin Buckland)
