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TOKYO (Reuters) - The dollar stood firm against its low-yielding peers on Tuesday on bets of a faster economic recovery in the United States and expectations that the U.S. Federal Reserve will show greater tolerance of higher bond yields than other central banks.

Risk sensitive currencies stepped back from sharp gains the previous day, as China’s top financial regulator discussed the need to proactively take measures to stabilise the housing market, while expressing wariness of the risk of bubbles bursting in foreign markets.

The dollar index rose 0.2% to 91.176, hitting a three-week high to edge closer to its February peak of 91.600.

The U.S. currency rose to as high as 106.93 yen, its highest since late August, and last stood at 106.78 yen while the euro dipped 0.2% to $1.2026, touching its lowest level in almost a month.

“The jury is still out on whether the bond market sell-off is over. But people expect the Bank of Japan to keep a tab on bond yields, which means there will be a bigger yield premium for the dollar,” said Kazushige Kaida, head of FX sales at State Street Bank’s Tokyo Branch.

The euro was under pressure as top officials from the European Central Bank sounded alarm over rises in bond yields.

President Christine Lagarde said the ECB will prevent a premature increase in borrowing costs for firms and households.

Policymaker Francois Villeroy de Galhau was even more explicit, saying some of the recent rises in bond yields were unwarranted and that the ECB must push back using the flexibility embedded in its bond purchase programme.

Traders were quick to sense the marked difference in tone between the ECB and the Federal Reserve.

Richmond Federal Reserve President Thomas Barkin said on Monday the uptick in long-term bond yields so far seems to suggest an adjustment to stronger growth and inflation outlook.

Atlanta Fed President Raphael Bostic said last week that bond yields remain comparatively low, while Federal Reserve Chair Jerome Powell has not appeared unduly concerned by rising bond yields.

“Central banks continue to take diverging views on the signals sent by the recent rise in yields. The U.S. Fed is taking it as a positive signal,” Tapas Strickland, director of economics and markets at National Australian Bank in Sydney, said in a note.

The U.S. economic recovery is reckoned to be on firmer ground, bolstered by prospects of a $1.9 trillion relief package and successful rollouts of COVID-19 vaccinations.

A survey by the Institute for Supply Management (ISM) released on Monday showed U.S. manufacturing activity increased to a three-year high in February amid a surge in new orders.

On the other hand, the Australian dollar dropped as much as 0.45% before erasing some losses to trade at $0.7766, after the Reserve Bank of Australia re-committed to keeping interest rates at historic lows.

While keeping rates at 0.1%, it emphasised that its targets for employment and inflation were not likely to be met until 2024 at the earliest.

Elsewhere, bitcoin also jumped back in tandem with gains in risk assets, trading at $49,129 and pulling away from Sunday’s three-week low of $43,021.