* Growth-linked currencies dip on China demand concerns
* Correlation breakdown seen in U.S. dlr, Aussie, S&P 500
By Julie Haviv
NEW YORK, March 20 (Reuters) - The dollar gained against the euro and yen in quiet trade on Tuesday, while the Australian dollar tumbled on central bank hints of more room to ease and fears about China's growth.
Global miner BHP Billiton said it saw signs that growth in iron ore demand was flattening in China, Australia's single biggest export market, pushing the Australian dollar down more than 1 percent.
The Aussie was also undermined by minutes from Australia's central bank, which were deemed as dovish as they suggested that the bank has ample room to ease policy should conditions worsen.
Against the U.S. dollar, the Australian dollar slid to $1.0492, down 1.1 percent for the day, while the New Zealand dollar slumped 1.3 percent to 0.8158.
Key technical support for the Australian dollar lies at the 200-day simple moving average of $1.0401 while the 100-day SMA lies at $1.0370. Resistance is seen near $1.064.
"In my opinion, there has been a bit of an overreaction to the BHP Billiton news because while it painted a bearish picture, it was not all that bad," said Brad Bechtel, managing director at Faros Trading in Stamford, Connecticut. "It nevertheless put the Australian dollar on its back foot."
Most currency activity was in the crosses, with investors covering short positions in the euro while selling the Aussie, Kiwi and Canadian dollar, he said.
"Euro/dollar is sidelined today and those trying to sell into rallies should continue to be frustrated as the currency pair remains stuck in a range," he said. "Having said that, news flow out of Europe should become more neutral-to-positive and that could take the euro higher."
A recent surge in U.S. Treasury yields is likely behind the sudden breakdown in the correlation between the Australia dollar and U.S. dollar and the S&P 500 stock index, according to David Rodriguez, quantitative strategist at DailyFX in New York.
The currency pair is trading near the middle of its year-to-date range while the S&P 500 index had recent hit its highest since the global financial crisis in 2008.
"The clear disconnect suggests the correlation may have broken down," Rodriguez said. ""Yet the Aussie dollar continues to offer a substantial yield advantage to its U.S. namesake, and this may ultimately be the most important driver of AUDUSD moves for the foreseeable future."
The euro last traded at $1.3224, down 0.1 percent on the day, not far from a one-week high near $1.3266 hit on Monday, with support at the 100-day moving average around $1.3199.
Long-term investors were largely absent from trade, with model-related funds and short-term macro discretionary participants the primary drivers of price action.
Some investors were cautious about pushing the euro higher ahead of talks between Italy's government and unions on reforms seen as key to turning around the euro zone's third-largest economy and paying down massive debts.
The dollar index rose 0.2 percent to 79.601, recovering from a one-week low hit the previous day. Analysts said much of the greenback's recent surge was due to improving U.S. data and a modest brightening of the U.S. Federal Reserve's economic outlook in its latest policy statement.
That spurred a rise in U.S. Treasury yields as investors scaled back expectations of further quantitative easing in the near term, and prompted some speculation the Fed may tighten monetary policy earlier than it had pledged.
But some strategists said the move in the greenback and U.S. Treasury yields could soon run out of steam.
"The recent dollar rally has been based on unrealistic expectations for U.S. rates and I don't think it is well founded," said Adam Cole, global head of FX strategy at RBC Capital Markets, "The market is priced for rate hikes much earlier than the FOMC (Federal Open Market Committee) has indicated."
Moves in the dollar versus the yen picked up in European trade after a quiet Asian session when Japanese financial markets were closed for a national holiday.
The dollar rose 0.3 percent to 83.58 yen, moving back toward an 11-month high of 84.187 hit last Thursday on trading platform EBS, while the yen hit a fresh four-month low versus the euro of 110.82 yen.