May 23, 2017 / 12:07 PM / 3 months ago

FOREX-Dollar struggles near 6-1/2 month low

* Dollar off 6-1/2 month lows

* But 10-year yields flat to lower, keeping pressure on greenback

* Sterling dips marginally after Manchester attack

* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh

By Patrick Graham

LONDON, May 23 (Reuters) - The dollar struggled to recover ground against other major currencies on Tuesday as stronger German data and low 10-year U.S. Treasury yields offset signs investors were ready to take some profit on its worst week of losses in a year.

Moves on major markets were tight, with the common denominator still a weaker greenback, down 0.1 percent against the yen, and as much as 0.7 percent against a resurgent New Zealand dollar.

But despite another strong batch of numbers from flash European purchasing manager surveys and a rise in German business morale to an all-time high, the euro was slightly lower in midday trading in Europe.

"U.S. political risk obviously has came very much to the front of market attention in the past week," said Lee Hardman, a currency economist with Japan's MUFG in London.

"But from here, to us most of the correction on the dollar has already happened. For it to extend much further we need to see further disappointing data from the United States."

By 1155 GMT, the dollar index had recovered to stand roughly flat on the day at 96.972, off a 6-1/2 month low of 96.797 hit mid-session on Monday.

It traded at 111.17 yen and $1.1216 per euro, having traded at $1.1268 - its weakest since Donald Trump's election as U.S. president last November.

The euro was strengthened on Monday by comments from German leader Angela Merkel, who said a euro that was "too weak" was the cause of Germany's massive trade surplus.

Berlin is likely to hear more grumbling, particularly from a Washington administration that has made noises about the dollar's strength, at a meeting of Group of Seven leaders in Italy this weekend.

But it is a fall off in U.S. data and growing concern over a White House that has failed so far to deliver on grand promises on border taxes, spending and capital repatriation that have dominated the past two weeks.

The dollar is now down around 7 percent for this year, handing back all of its gains after Trump's election last year.

"The market was positioned very short of the kiwi so there has been a bit of a squeeze there," said Sam Lynton-Brown, a currency strategist with BNP Paribas in London.

"Dollar-yen (also) hasn't adjusted lower in terms of what we are seeing in the yields and there is a risk for a correction towards 110 yen."

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets

Additional reporting by Shinichi Saoshiro in TOKYO, editing by David Evans

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