Dollar at three-month peak on yen, Nikkei climbs

SYDNEY (Reuters) - The U.S. dollar neared multi-year highs on the yen and euro in Asia on Tuesday amid starkly diverging outlooks for interest rates globally, while markets looked past a surprisingly high reading on Chinese inflation.

The dollar climbed to a three-month high at 121.71 yen and came within a whisker of the December peak at 121.84. A break would take it to territory not visited since July 2007.

A lower yen is generally viewed as positive for Japan's exports and corporate profits, and the Nikkei <.N225> added 0.5 percent.

Other Asian markets were mixed with Australian stocks <.AXJO> up 0.5 percent, while MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> eased 0.2 percent.

Chinese consumer prices topped expectations with an annual rise of 1.4 percent in February, although much of the pick up was caused by seasonal volatility in food prices.

Shanghai shares <.SSEC> eased 0.4 percent, but that merely unwound some of the gains made on Monday.

Wall Street had also rallied on Monday, helped by more billion-dollar takeover deals. [.N]

The Dow <.DJI> rose 0.78 percent, while the S&P 500 <.SPX> gained 0.39 percent and the Nasdaq <.IXIC> 0.31 percent. The pan-European FTSEurofirst 300 index <.FTEU3> ended down 0.24 percent.

Speculation the Federal Reserve could start raising interest rates from June kept the dollar <.DXY> well underpinned in currency markets.

The euro was down at $1.0831 after failing to recoup almost any of its recent hefty losses that saw it fall to $1.0822, the lowest since September 2003. Bears are now eyeing the next major layer of chart support at $1.0762.

The European Central Bank began its trillion-euro bond buying campaign on Monday, nudging down yields in Germany and other core EU sovereigns.

Japan is well under way in its own bond buying program, which is expected to last for at least another year.

Analysts at Barclays estimate ECB asset purchases will outstrip net supply by a factor of 3-to-1, shrinking the outstanding amount of assets by 840 billion euros.

That will force investors to seek higher yields in longer-duration and riskier debt both within the EU and abroad. The resulting outflow of funds could well keep downward pressure on the euro for months to come.

Lingering uncertainty over Greece added to the euro's woes. Finance experts from Greece will open talks about economic reforms on Wednesday with officials from the European Union, the ECB and the International Monetary Fund.

The ECB's Governing Council is set to hold a teleconference on Thursday to discuss extending emergency liquidity assistance (ELA) for Greek banks.

Commodities continued to struggle with the strength of the U.S. dollar. Brent crude oil eased 5 cents to $58.48 a barrel, while U.S crude added 7 cents to $50.07.

Gold was stuck at $1,168 an ounce, just above a three-month low.

(Editing by Richard Pullin)