Dollar steadies after falling on US CPI

TOKYO, May 16 (Reuters) The dollar steadied against the euro on Wednesday, after falling on a report that suggested U.S.

inflation was well-contained and backed a view that the Federal Reserve is likely to cut interest rates this year.

The euro held on to its gains against the dollar on expectations that euro-zone interest rates will continue to rise, and stayed near a record high against the yen.

The euro is little moved against the dollar, trading at $1.3595 after rising 0.35 percent in the overnight session.

Traders said the currency got a boost from stronger-than-expected economic growth for the first quarter in the euro zone and from European investors repatriating their share of the U.S. Treasury's quarterly payout in coupons on Tuesday.

Against the yen, the euro was unchanged at 163.40 yen, after hitting a record high of 163.67 yen the previous session.

The dollar was little moved against the yen trading at 120.20 yen after rising as high as 120.59 yen, its highest in almost three months in the overnight session.

Analysts said an outlook for tame inflation helps the global stock market, encouraging investors to hold on to risky positions such as carry trades in which low-yielding currencies like the yen are borrowed to fund investment in higher-yielding assets.

''The condition of the market with rising global stocks supporting carry trades has not been changed,'' said Koji Fukaya, senior currency strategist at Deutsche Securities.

The yen remained weak, especially after soft machinery orders data that strengthened expectations that the Bank of Japan will raise interest rates only gradually this year.

Traders now await Japanese economic growth data for the first quarter due on Thursday and a news conference by BOJ Governor Toshihiko Fukui after a policy meeting starting on Wednesday.

REUTERS SRS VP0620