* U.S. bond market stabilizes after 10-year yield hits 4-year peak
* U.S. services sector strongest in over 12 years -ISM
* ECB's Draghi sees risks from currency market volatility
* Data show traders build bearish dollar bets in futures market
(Updates market action, adds quote)
By Richard Leong
NEW YORK, Feb 5 (Reuters) - The dollar rose against a basket of currencies on Monday as U.S. bond yields rallied on safe-haven demand stemming from a dramatic selloff on Wall Street, where the Dow Jones at one point fell more than 1,500 points.
Analysts cautioned, however, that further gains in the greenback would be limited as other economies seem poised to expand more quickly than the United States. Speculation that other central banks besides the Federal Reserve may roll back stimulus will probably cap the U.S. currency's recovery.
"The dollar selling (had been) overdone," said Paul Christopher, head global market strategist at Wells Fargo Investment Institute in St. Louis. "We think rates are not going to go up a lot more here."
Early on Monday, the U.S. benchmark 10-year Treasury note's yield touched 2.885 percent, its highest since January 2014, after a robust jobs report showed wage growth last month posted its biggest annual gain since June 2009. The monthly payrolls data spurred worries that the Fed might raise U.S. interest rates faster to counter rising wage pressure.
The 10-year yield was last at 2.764 percent, down 8.8 basis points from late on Friday. The Institute for Supply Management's gauge on U.S. service industries, which hit a 12-1/2-year high last month, also supported the dollar on Monday. The dollar index was up 0.33 percent at 89.488 after gaining 0.6 percent on Friday. "Could (Monday's performance) change the trend?" Christopher said. "I doubt it."
Traders are favoring riskier, non-U.S. assets even as U.S. yields remain the highest among developed markets, which has supported the dollar until recently.
"Yet the dollar has kept sliding, and sizable positions have built up betting on a deeper drop," BlackRock's global chief investment strategist Richard Turnill wrote in a note to clients.
Data on currency futures positions showed net bearish bets against the dollar swelled to $17.5 billion last week, just shy of a five-year high. The euro fell 0.39 percent to trade at $1.2412, slightly below a three-year high of $1.2538 on the EBS trading system .
The euro briefly pared losses following upbeat comments by European Central Bank President Mario Draghi before the European Parliament, but Draghi also said the current surge of the single currency might impair its outlook for price stability. Against the yen, the greenback slipped 0.56 percent at 109.48 yen , holding above a four-month low of 109.76 yen on Jan. 26, Reuters data showed.
In U.S. afternoon trading, the Dow was down 3.7 percent, while the S&P 500 index was down 3 percent. Currency bid prices at 3:25PM (2025 GMT)DescriptionRICLastU.S. PctYTD PctHigh Bid Low Bid
CloseChange Change
Previous
Session Euro/Dollar $1.2414 $1.2460-0.37+3.48+1.2475+1.2394Dollar/Yen 109.4900110.1000 -0.55-2.82+110.2900+109.1400Euro/Yen 135.94137.23 -0.94+0.56+137.2200+135.5500Dollar/Swiss 0.93450.9310 +0.38-4.09+0.9376+0.9288Sterling/Doll 1.39981.4120 -0.86+3.60+1.4150+1.3988arDollar/Canadi 1.24971.2424 +0.59-0.64+1.2524+1.2398anAustralian/DoAUD= 0.79080.7920 -0.15+1.37+0.7953+0.7891llarEuro/Swiss 1.16041.1600 +0.03-0.73+1.1639+1.1573Euro/Sterling 0.88660.8820 +0.52-0.19+0.8871+0.8812NZ 0.72850.7301 -0.22+2.81+0.7330+0.7273Dollar/DolarDollar/Norway 7.79987.7311 +0.89-4.96+7.8160+7.7007Euro/Norway 9.68489.6324 +0.54-1.66+9.6958+9.6023Dollar/Sweden 7.94727.9035 +0.22-3.10+7.9639+7.8825Euro/Sweden 9.86719.8456 +0.22+0.28+9.8801+9.8263
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ GRAPHIC-U.S. Dollar Index & CFTC Positions GRAPHIC-Global FX rates in 2018 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>(Additional reporting by Tommy Wilkes in London; Editing by Larry King and Lisa Von Ahn)
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