* Dollar cuts losses after U.S. housing starts data

* Focus on Fed meeting next week

* Sterling rises as UK inflation hits 30-year high

* Euro supported after 10-year German Bunds briefly turn positive

By Gertrude Chavez-Dreyfuss and Joice Alves

NEW YORK/LONDON, Jan 19 (Reuters) - The dollar on Wednesday slid from one-week highs hit a day earlier, with U.S. Treasury yields retreating as well after hitting roughly two-year highs on 2-year and 10-year notes, but the greenback remains well-supported, as investors prepared for a widely expected interest rate increase in March.

U.S. 10-year Treasury yields US10YT=RR touched a new two-year high of 1.902% on Wednesday, but was last down 1 basis point at 1.8539%.

But bond yields in other major economies rose as well, with the euro, sterling, the Canadian, Australian, and New Zealand dollars, among others, gaining versus the U.S. currency.

Sterling, meanwhile, edged higher after data showed British inflation rose 5.4% in December, to its highest level in 30 years, raising rate hike expectations. Talks of a leadership challenge to Prime Minister Boris Johnson kept the pound in check.

"Higher yields have gone global, spilling over and supporting currencies like the euro, sterling and Canadian dollar," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

"The buck remains on sturdier ground though ahead of next week's Fed decision when the central bank could abruptly end QE (quantitative easing) and potentially ready the market for an aggressive rate hike in March," he added.

The Fed will meet next week and will likely provide further clarity and details on the end of quantitative easing, which will likely be in March. The U.S. central bank could also signal it will raise interest rates in March as well right after ending QE.

Fed funds futures 0#FF: have fully priced in a rate hike in March and four in all for 2022.

In midmorning trading, the dollar index was down 0.1% at 95.574 =USD .

The greenback trimmed losses after data showed U.S. homebuilding unexpectedly increased in December amid unseasonably mild weather. Housing starts rose 1.4% to a seasonally adjusted annual rate of 1.702 million units last month.

The euro, the largest component in the dollar index, was up 0.1% at $1.1344 EUR=EBS , after the previous day's sharpest daily drop in a month.

The single European currency was underpinned overall after Germany's 10-year bond yield rose above 0% for the first time since 2019 on Wednesday, marking a potential turning point for euro area debt characterised for years by negative yields.

The German 10-year yield, considered a benchmark for the whole euro zone, rose as high as 0.025%, and was last up nearly 2 basis points on the day DE10YT=RR .

Sterling rose 0.8% versus the dollar to $1.3837 GBP=D3 after the red-hot UK inflation data. The euro, meanwhile, slipped 0.1% versus the pound to 83.17 pence EURGBP=D3 , after earlier falling to its lowest since February 2020.

The pound was also supported by the surge in UK yields, with the two-year gilt yield GB2YT=RR rising to 0.958%, its highest level since March 2018.

The Australian dollar rose 0.6% to US$0.7233 AUD=D3 .

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Currency bid prices at 9:49AM (1449 GMT) Description

RIC

Last

U.S. Close Pct Change

YTD Pct

High Bid

Low Bid

Previous

Change

Session

Dollar index

=USD

95.5360

95.7140

-0.17%

-0.133%

+95.7920

+95.4970 Euro/Dollar

EUR=EBS

$1.1346

$1.1327

+0.17%

-0.20%

+$1.1354

+$1.1319 Dollar/Yen

JPY=EBS

114.3450

114.5900

-0.20%

-0.66%

+114.7850 +114.2050 Euro/Yen

EURJPY=

129.74

129.79

-0.04%

-0.45%

+129.9800 +129.4000 Dollar/Swiss

CHF=EBS

0.9160

0.9175

-0.17%

+0.41%

+0.9177

+0.9145 Sterling/Dollar GBP=D3

$1.3642

$1.3598

+0.34%

+0.89%

+$1.3648

+$1.3588 Dollar/Canadian CAD=D3

1.2494

1.2513

-0.14%

-1.17%

+1.2524

+1.2450 Aussie/Dollar

AUD=D3

$0.7233

$0.7186

+0.67%

-0.47%

+$0.7238

+$0.7177 Euro/Swiss

EURCHF=

1.0393

1.0391

+0.02%

+0.23%

+1.0403

+1.0375 Euro/Sterling

EURGBP=

0.8315

0.8328

-0.16%

-1.01%

+0.8342

+0.8314 NZ

NZD=D3

$0.6805

$0.6765

+0.62%

-0.55%

+$0.6811

+$0.6764 Dollar/Dollar

Dollar/Norway

NOK=D3

8.7470

8.8125

-0.51%

-0.48%

+8.8220

+8.7490 Euro/Norway

EURNOK=

9.9267

9.9682

-0.42%

-0.86%

+9.9947

+9.9215 Dollar/Sweden

SEK=

9.1111

9.1357

-0.10%

+1.03%

+9.1551

+9.1062 Euro/Sweden

EURSEK=

10.3376

10.3476

-0.10%

+1.01%

+10.3686

+10.3334

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World FX rates Link

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Reporting by Gertrude Chavez-Dreyfuss in New York and Joice Alves in London; Editing by Alexander Smith,
Kevin Liffey and Jonathan Oatis