The dollar slipped on Thursday with funds sensing a rally this month is ending and expectations increasing that commodity prices have resumed an uptrend, pushing up equities in Asia's energy and materials sectors.

Investors have been struggling to find a common theme in financial markets after two routs in commodities over the past two weeks led to a reduction of risky assets in portfolios. Economic data out of the United States and China also sent mixed signals.

Some investors latched on to a rise in U.S. 10-year yields from a low for the year hit overnight because Federal Reserve officials expressed worries about inflation ahead of the expiration of a $600 billion bond purchase program next month. A rebound in the S&P 500 index from a one-month low also played a role.

A slide in Treasury futures suggested more weakness was in store for U.S. bonds.

Higher U.S. yields supported the dollar briefly against the low-yielding yen, but not against other major currencies. Price action suggests investors are sensitive to relative interest rate advantages, but also see the U.S. currency bogged down with economic and fiscal imbalances.

The dollar index, a measure of its value versus six other major currencies, was down 0.2 percent <.DXY> after hitting a one-month high on Monday.

The euro was up 0.1 percent to $1.4268 in choppy trade, trying to chalk up a fourth consecutive day of gains after the market was unable to push the common currency below its 200-week moving average at $1.4000.

If you look at the next few months, the euro could fall to around $1.35. But I guess it's difficult to sell the euro beyond $1.40 now, when there's talk that the European Central Bank could raise rates in July, said Minori Uchida, a senior analyst at the Bank of Tokyo-Mitsubishi UFJ in Tokyo.

The dollar was at 81.64 yen, steady on the day after earlier hitting a three-week high of 81.82 yen.

SHRINKING JAPAN

Japan's Nikkei share average slipped 0.5 percent <.N225>, with tech shares reversing earlier gains and weighing on the broader market.

Japan's economy shrank more than expected in the first quarter and slipped into recession after the triple blow of the March earthquake, tsunami and nuclear crisis hit business and consumer spending and disrupted supply chains.

The difficult business environment has not hit stocks as hard and many economists expect growth to resume in the second half of the year, but power shortages are a real threat to the world's third-largest economy.

The MSCI index of Asia Pacific shares outside Japan rose 0.2 percent <.MIAPJ0000PUS> after earlier gaining as much as 1 percent, rallying from a six-week low hit on Tuesday.

The energy and materials sectors were outperforming after commodities prices posted their biggest gain in two months overnight. The MSCI's Asia Pacific ex-Japan materials sector index <.MIAPJMT00PUS> reflected the second-highest returns for the year to date among all sectors, but lagged far behind the top consumer discretionary sector.

Australia, one of the most sensitive economies in the region to commodity prices, saw its benchmark index rise 1.2 percent <.AXJO>, leading other Asian stock markets.

Miners listed in Australia were sold down too much when commodities prices plunged two weeks ago and large-cap miners such as BHP and Rio Tinto in particular are cheap, dealers and analysts said.

BHP and Rio Tinto shares were up 1.2 percent and 1.3 percent respectively in modest trading volume.

In the longer term, with our commodity price forecasts, they remain attractive, said Mark Taylor, senior resources analyst at Morningstar.

U.S. crude's front month future edged down 0.3 percent to $98.80 a barrel, but was well above the low for the month hit two weeks ago at $94.63 a barrel.

The June 10-year Treasury future slipped 3/32 to 122-14/32 after the cash yield bounced 7 basis points to 3.18 percent on Wednesday.

Central banks and domestic U.S. mutual funds were buyers of Treasuries overnight, though other longer-term investors were sellers of mid-maturity paper, Royal Bank of Scotland said in a note.

Futures have broken an upward trend in place since early April and have also dropped back below the 200-day moving average, bearish technical signals that even without Washington hitting its debt ceiling should give caution to bond bulls.

Republican Congressional officials meanwhile have been floating the idea that investors would be forgiving if the government missed a few coupon payments.

(Additional reporting by Miranda Maxwell and Sonali Paul in MELBOURNE and Hideyuki Sano in TOKYO; Editing by Matt Driskill)

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