By Richard Leong
NEW YORK (Reuters) - The euro fell to a seven-week low against the dollar on Monday on a spat between Italy and the European Union over Rome's budget plans, while the yuan weakened as Beijing's move to spur more lending failed to ease concern about economic growth.
Sterling retreated as traders booked profits on recent gains tied to optimism about a Brexit deal.
Nervous investors piled more money into the dollar, as speculators' bullish bets in the greenback grew to their highest level since December 2016 last week.
The greenback's gain was limited by a third day of losses on Wall Street, which was stoked by anxiety about the U.S.-China trade tension and rising U.S. bond yields.
"What’s been weighing on broader markets has been supporting the dollar: rising interest rates around the world for both fundamental and worrisome reasons," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington. "Italian borrowing rates have climbed, a sign of investor worry in the nation’s debt crisis."
On Monday, Italian 10-year bond yield
Italian Deputy Prime Minister Matteo Salvini, speaking at a media conference with French far-right leader Marine Le Pen, denounced European Commission President Jean-Claude Juncker and Economics Commissioner Pierre Moscovici as enemies of Europe.
The single currency fell 0.26 percent against the dollar
The euro fell 0.31 percent to 1.14015 Swiss franc
(Graphic: Italy-Germany spread and Euro - https://reut.rs/2OP5C1o)
The Chinese currency
On a spot basis, the yuan
China's central bank on Sunday announced a steep cut in the level of cash that banks must hold as reserves, marking the fourth such decrease this year.
The United States remains concerned about China's recent currency depreciation, a senior Treasury official said on Monday.
The pound fell 0.24 percent to $1.3093
EU Brexit negotiators believe a deal with Britain on leaving the bloc is "very close", sources said, in a sign that a compromise on a major sticking point - the future Irish border - might be in the making.
The dollar continued its recent march higher on upbeat domestic economic data and safe-haven demand amid geopolitical concerns.
U.S. stock prices fell on Monday, reducing some of the greenback's appeal. The S&P 500 index (.SPX) was down 0.2 percent in mid-afternoon trading.
An index that tracks the greenback against a basket of major currencies (.DXY) was up 0.13 at 95.744.
The U.S. bond market was closed for the Columbus Day holiday. On Friday, the 10-year yield touched a seven-year peak of 3.248 percent.
(Graphic: Trade tensions in China's stock, currency markets - https://tmsnrt.rs/2PlCZGr)
(Additional reporting by Saikat Chatterjee in London; Rodrigo Campos in New York; Editing by Louise Ireland and Susan Thomas)