FOREX-Dollar climbs to two-week peak vs yen; euro gives up gains

* U.S. data mixed, but dollar-supportive nonetheless

* Euro surrenders gains, after hitting 2-month high (Updates prices, adds comment, U.S. data; changes byline, dateline; previous LONDON)

By Gertrude Chavez-Dreyfuss

NEW YORK, May 1 (Reuters) - The dollar touched a two-week high against the yen on Friday and rose from a two-month low versus a basket of major currencies, supported by signs that the U.S. economy may be stabilizing after a recent soft patch.

U.S. economic reports were mixed on Friday, however, with some weakness noted in manufacturing and construction. That did not stop investors from buying back what has been an oversold dollar. Yields on U.S. 30-year government bonds and 10-year notes hit seven-week highs, also underpinning the greenback.

"I don't think these numbers change the narrative for the dollar and we expect the dollar to trade in a range pretty soon," said John Doyle, director of markets at Tempus Consulting in Washington.

"The numbers are mixed and while there has been some improvement in the data, we're still waiting for more evidence that the U.S. economy has indeed turned the corner," he said.

Data showed that U.S. manufacturing activity held at a near two-year low in April, but a jump in consumer sentiment and stronger-than-expected vehicle sales suggested the economy was pulling out of a weak phase in its cycle.

Separately, the Commerce Department said construction spending slipped 0.6 percent to an annual rate of $966.6 billion, the lowest level since September.

The net effect of the data was positive on the dollar.

The U.S. currency started to gain momentum on Thursday after the release of more positive economic data. Signs that the labour market was recovering with initial jobless claims dropping, wages rising along with a jump in Midwest business activity, all combined to draw investors back to the greenback.

Volumes were on the lower side with most of Europe shut for the May Day holiday.

In the UK, which was open for trading, sterling fell sharply against the dollar and the euro after British manufacturing data showed growth cooling before a tightly fought election.

In late morning trading, the dollar rose against the yen, supported by Treasury yields' rise. The dollar was up 0.6 percent at 120.11 yen. It hit a two-week high of 120.24.

The dollar index was up 0.5 percent at 95.055, having suffered its worst month in four years in April.

The euro was flat at $1.1223,after earlier hitting a two-month peak. The euro has been aided recently by a surge in German yields as fears of deflation in Europe eased somewhat. (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Anirban Nag in London; Editing by Ted Botha)