* Yuan sinks again as exports fall more than expected
* Dollar/yen retreats from 2-1/2 month high
* U.S. 10-year bond yield dips from 4-month peak
* Dollar index just below 7-month high (New throughout after start of European trading)
By Patrick Graham
LONDON, Oct 13 (Reuters) - A poor batch of Chinese trade numbers halted the dollar’s broader rally on Thursday and sent the offshore version of the country’s yuan currency to within sight of lows hit in a dramatic sell-off in January.
In the tightly controlled onshore market, the yuan was fixed at another six-year low of 6.7255 yuan per dollar. Offshore it traded 0.2 percent weaker at 6.7364.
China halted January’s run on the currency by selling huge tens of billions of its dollar reserves and pumping up offshore interest rates on the yuan to squeeze out speculators.
But concerns over the real state of the world’s second biggest economy and banks and companies’ ability to finance huge debts run up over the past decade continue to argue for a sharp devaluation of the currency.
China’s exports fell 5.6 percent in yuan terms in September from a year earlier and 10 percent in dollars.
“(This data) is not good for the renminbi but it will also weigh on U.S. treasury yields,” said Stephen Gallo, European head of FX strategy at the Bank of Montreal in London.
“Given sluggish USD rates and the fact that the odds of a December interest rate hike are unlikely to climb much above their current levels for the time being, there are probably better levels to be buying dollars at in the very short-term.”
The dollar dropped to as low as 103.555 yen at one point, down 1 percent from the day’s high of 104.635 yen, which was the greenback’s strongest level since late July.
The dollar last stood at 103.94 yen, down 0.2 percent from late U.S. levels on Wednesday.
The next round of central bank policy meetings are at the centre of market discussions.
Reuters reported late on Wednesday that the European Central Bank may discuss technical changes to its asset-buying scheme next week but a decision could be deferred until December when the bank will also decide whether to extend the scheme beyond March.
That pushed Bund yields lower, undoing early gains for the euro and prodding it to an 11-week low of $1.1000 in morning trade in London.
September meeting minutes supported growing market expectations that the U.S. Federal Reserve will raise interest rates in December. But analysts say U.S. bond yields and the dollar may be reaching the limits of the recent shift until the U.S. presidential election is out of the way.
“The minutes are consistent with a December hike in our view, which is already nearly 70 percent priced in,” analysts from Credit Agricole said in a note to clients.
Against a basket of six major currencies, the dollar last stood at 97.994, having pulled back from a seven-month high of 98.122 set earlier on Thursday.
The U.S. 10-year Treasury yield stood at 1.7428 percent in Asian trade on Thursday, after climbing to a four-month high of 1.801 percent on Wednesday. (Reporting by Masayuki Kitano and Shinichi Saoshiro; Editing by Alison Williams)