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From Ray, Wee and Amanda Cooper

Singapore/London, May 14 (Reuters) - The dollar held firm on Thursday, supported by rising U.S. Treasury yields, as investors began to anticipate a possible interest rate hike by the Federal Reserve this year, and as global attention focused on a two-day summit between U.S. President Donald Trump and his Chinese counterpart Xi Jinping.

Xi told Trump that trade talks were making progress, but warned that the dispute over Taiwan could push relations onto a dangerous path, in what Trump called a "major summit ever."

As the summit began, the Chinese yuan traded near its highest level in three years on the domestic market. In offshore trading, the currency rose for the eighth consecutive day against the dollar, reaching 6.7845.

In the broader market, the dollar held firm on Thursday, leaving the euro little changed at $ 1.1717 and on track for a 0.6 percent weekly loss, which would be its biggest drop in two months.

Against a basket of currencies, the dollar index was last at 98.48 , up 0.6 percent since the start of the week, and heading for its strongest weekly performance since the start of the Iran war.

But the dollar lost gains it had made in early trading against the yen, recording a slight decline to 157.87 yen, supported by statements from Kazuyuki Masu, a member of the Bank of Japan's (central) board of directors, who stressed the need for the bank to act to raise interest rates quickly if there are no clear signs of an economic slowdown.

It is believed that Japanese authorities intervened several times in the past two weeks to curb the dollar's strength against the yen. The yen has been weakening amid expectations that the Federal Reserve will raise interest rates this year. The dollar has now recovered 50 percent of the losses it incurred since officials intervened to support the yen.

The dollar received support from signs of renewed inflationary pressures in the United States, with data released Wednesday showing producer prices posted their biggest increase in four years in April. This followed data released Tuesday showing a sharp rise in consumer prices last month, pushing the annual inflation rate up at its fastest pace in three years.

Carol Kong, currency analyst at Commonwealth Bank of Australia, said, "The inflation data we received this week is certainly not going to be welcomed by Federal Open Market Committee officials, including the new chairman, Kevin Warsh."

The U.S. Senate on Wednesday approved Warsh's appointment as chairman of the Federal Reserve, making the 56-year-old lawyer and financial expert the head of the U.S. central bank.

According to the CME FedWatch tool, markets now see a 31.8 percent probability of a US interest rate hike in December, up from just over 16 percent a week ago.

Changing interest rate expectations and concerns about rising inflation have led to higher US Treasury yields, with long-term bond yields reaching their highest levels since mid-2025.

The pound held steady against both the dollar and the euro after official data today showed the British economy unexpectedly grew by 0.3 percent in March, suggesting it has shown some resilience as the war in Iran escalates.