DOLLAR HOLDS NEAR 4-YEAR HIGHS AS YIELD ADVANTAGE LURES FUNDS

The dollar held near a four-year high against a basket of major currencies on Friday, and further gains looked likely for the US currency as it boasted its the biggest yield advantage over the euro in 15 years.

The dollar index is on track for its 11th successive weekly rise, a feat it hasn't achieved in four decades, as investors prepare for an eventual rate hike in the United States after the Federal Reserve wraps up its massive stimulus program next month.

The European Central Bank and the Bank of Japan, in contrast, are seen as likely to offer more stimulus to support their flagging economies in coming months.

"At the moment, the economy with strong business sentiment is that of the United States... The dollar is becoming the destination of funds that are escaping stimulus elsewhere," said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.

The dollar index stood at 85.136, little changed from late US levels but up 0.5 per cent so far this week and not far from a four-year high of 85.485 hit on Thursday.

The yield premium US Treasuries offer over German Bunds stood near 15-year highs on Thursday as markets weighed the prospects of US interest rate hikes against the chance of more monetary stimulus in the euro zone.

High bond yields tend to attract more fund inflows as bond investments account for a big chunk of international capital flows.

The euro traded at $1.2758, having fallen to a 22-month low of $1.26955 on Thursday, breaking below an important support around $1.2750 from triple bottoms hit in March-July 2013, pointing to the chance of further declines.

The common currency also slumped to a two-year low against the British pound on Thursday, falling as low as 77.855 pence . It last stood at 78.105.

Against the yen, it dropped to 138.43 yen in early Friday trade, its lowest level in two weeks.

The yen recovered slightly as a sharp fall in Wall Street shares on Thursday sapped risk appetite and drove demand for the safe-haven Japanese currency.

The dollar stood at 108.61 yen, having lost a bit of momentum after hitting a six-year high of 109.46 yen a week ago.

The Australian dollar was another casualty of the broad US dollar gains, trading at $0.8795, just above Thursday's low of $0.8774 - a level not seen for nearly eight months.

The New Zealand dollar flirted with one-year lows, still smarting from the central bank chief's tough talk on the previous day.

The kiwi traded at $0.7948, near a trough of $0.7912 hit on Thursday, when the Reserve Bank of New Zealand Governor Graeme Wheeler said that the exchange rate is unsustainable and at unjustified levels.