FOREX-Dollar nurses losses after dovish Fed comments, yen slips

* Dollar index steady after previous day's 0.3 pct drop

* Fed's Yellen says U.S. economy performing far short of potential

* Yen slips as equities and risk sentiment get a boost

* Sterling slips but clings to much of previous day's gain

* BOE (Shenzhen: 000725.SZ - news) says British economic recovery has finally taken hold

By Masayuki Kitano and Ian Chua

SINGAPORE/SYDNEY, Nov 14 (Reuters) - The dollar held steady versus a basket of currencies on Thursday, struggling to gain traction after dovish comments from Fed chairman nominee Janet Yellen suggested the Fed may not be close to scaling back its stimulus.

Yellen, in remarks prepared for her nomination hearing before the Senate Banking Committee later on Thursday, said the U.S. jobless rate was still too high and both the labour market and economy were performing "far short" of potential.

Investors responded by driving the benchmark 10-year Treasury yield down as far as 2.688 percent on Wednesday, from Tuesday's near two-month high of 2.792 percent, which in turn undermined the greenback.

The dollar index was steady on the day at 80.948, after having fallen 0.3 percent on Wednesday. The euro touched a one-week high of $1.3499 earlier on Thursday but later sagged back to $1.3465, down 0.2 percent on the day.

Market participants said Yellen's comments suggested that the Fed would stick with its accommodative monetary policies for a while, with some saying her comments pointed to the possibility that the U.S. central bank would be in no rush to taper its bond-buying stimulus.

"The sense I got was that she is very cautious about scaling back quantitative easing," said Teppei Ino, an analyst for Bank of Tokyo-Mitsubishi UFJ in Singapore.

Still, since Yellen's comments were not too specific, a focal point will be whether she says anything more detailed about the bond-buying stimulus and the possibility of tapering, when she appears before the Senate Banking Committee later on Thursday, Ino said.

The yen fell as Yellen's dovish comments gave a lift to broader risk sentiment, with Japan's benchmark Nikkei share average surging 2.7 percent. Tokyo shares were also supported by data showing the Japanese economy notched its fourth straight quarter of growth.

Some market players said comments by Japanese Finance Minister Taro Aso may have added to pressure against the yen. Aso (Taiwan OTC: 8443.TWO - news) said it was important to have foreign exchange intervention as a policy option, saying Japan must always be ready to send a signal to markets to curb excessive, one-sided forex moves.

The dollar rose 0.5 percent to about 99.68 yen, nearing a two-month high of 99.80 yen set on Tuesday. The euro edged up 0.3 percent to 134.24 yen.

The common currency showed resilience even though European Central Bank Executive Board member Peter Praet raised the prospect of the central bank starting to buy assets to bring inflation closer to its target.

In contrast to Yellen's remarks, Bank of England Governor Mark Carney gave an upbeat assessment of the country's economy, saying the recovery has finally taken hold.

"For the first time in a long time you don't have to be an optimist to see the glass is half full," Carney said on Wednesday, although he was quick to stress the BOE was not about to raise interest rates anytime soon.

Sterling slipped 0.1 percent to $1.6033, but still held on to the bulk of the gains from Wednesday, when it climbed more than 0.9 percent.

"The BOE's quarterly inflation report struck a more hawkish tone than anticipated, with the BoE upgrading its labour market forecast considerably," said Christopher Vecchio, currency analyst at DailyFX.