*

European gas prices worry investors, dent euro and pound

*

China's yuan and stocks under pressure

*

Trump's policies dominate market sentiment

*

US share futures rise after Tesla-led fall on Thursday

(Updates throughout after early European trading)

By Ankur Banerjee and Alun John

SINGAPORE/LONDON, Jan 3 (Reuters) - The dollar held near

a two-year high against a group of peers on Friday as investors

bet the gap between growth in the U.S. and elsewhere will get

wider, and Chinese blue chips suffered their biggest weekly fall

since 2022.

The dollar index, which tracks the currency against a basket

of six other currencies, hit its highest since November 2022 on

Thursday, and the euro fell to $1.02248, also its lowest since

2022. The pound and Japanese yen were also at multi-month lows.

The euro was last slightly firmer at $1.0280, as

was the pound at $1.2392, but the dollar's continued

strength dominated the market mood.

The U.S. currency rallied late last year as investors bet

President-elect Donald Trump's policies would drive growth and

inflation, meaning fewer further rate cuts from the Federal

Reserve and higher yields on U.S. Treasuries, when European

central banks are set to keep cutting rates.

While U.S. Treasuries yields have come off their late

December highs - the benchmark 10-year Treasury yield was last

at 4.549%, down 2 basis points on the day - the dollar has kept

climbing on growth concerns elsewhere.

"Aside from the implications of expected U.S. protectionism

under Trump, we think pressure is being added by the rise in

(gas prices) caused by Ukraine's pipeline shutdown," said

Francesco Pesole, currency analyst at ING.

"The pound was the worst performer yesterday, and it is

probably not a coincidence that GBP is the most negatively

correlated with gas in the G10," he added.

Wholesale gas prices in Europe are around their highest in

over a year, with temperatures falling, lower levels of gas in

storage, and the expiry of a decades-long deal for Russia to

supply gas to Europe via Ukraine.

That is an added headwind for European stocks,

which were down 0.3% on Friday, reversing gains from the

previous day, though oil and gas shares gained.

Friday's fall in European stocks was in part a catch-up with

a late decline on Thursday in the U.S., where benchmarks ended

broadly lower. Shares of Tesla sank 6.1% after the

company reported its first annual drop in deliveries.

S&P and Nasdaq futures were both up around 0.4% on Friday

however.

"It's been a tough period for equities around the turn of

the year, but strange things can happen in illiquid markets,"

said Ben Bennett, Asia-Pacific investment strategist at Legal

and General Investment Management.

"I don't think we should extrapolate this performance. That

said, a stronger dollar and higher bond yields will weigh on

sentiment going forward and equity investors will be hoping this

changes soon."

CHINA WORRIES

Growth concerns in China are also near the top of investors'

minds. The country's blue chip index shed 5.2% this

week, its biggest weekly loss since October 2022.

In addition, China's yuan slid past the 7.3 per dollar

technical threshold to a 14-month low, on a confluence of

crumbling Chinese yields, rate cut expectations in the face of a

strong U.S. dollar and the threat of tariffs from the incoming

Trump administration.

The fall in yields, as investors seek the safety of

government bonds, has been steep. Ten-year and

30-year government bond yields each weakened around

3 basis points to touch record lows.

An announcement from China it will sharply increase funding

from ultra-long treasury bonds in 2025 to spur business

investment and consumer-boosting initiatives, did little to

boost the mood.

Despite political turmoil in South Korea, shares there rose

after five sessions of declines, as the country's

finance minister, who was last month appointed acting president,

said he remained committed to stabilising the country's

financial markets.

In commodities, Brent crude oil futures eased 0.33% to

$75.67 a barrel and U.S. crude was down 0.45% at $72.8.

Gold was steady at $2,655 per ounce, after a 27% rise

in 2024, its strongest annual performance since 2010.

(Editing by Michael Perry, Kim Coghill and Barbara Lewis)