* Dollar springs back against low-yielding currencies * Yen near four-month low as U.S. bond yields gain * Risk-sensitive currencies supported * Graphic: World FX rates tmsnrt.rs/2RBWI5E LONDON, Feb 17 (Reuters) - The dollar rose against low-yielding currencies on Wednesday, reaching a five-month high against the yen, as U.S. bond yields jumped on the prospects of further economic recovery and a possible acceleration in inflation. Bitcoin set a record high of $51,721, a day after the cryptocurrency rose to $50,000 for the first time. That brought its total market capitalisation to more than $900 billion, as traders bet on its further acceptance among major companies. The dollar’s index against six other major currencies recovered from Tuesday’s three-week low of 90.117 to last stand 0.2% higher at 90.864. ADVERTISEMENT Soaring U.S. bond yields boosted the dollar, with the 10-year yield rising as high as 1.333% from around 1.20% at the end of last week. “The sell-off in U.S. Treasuries is the major driver of FX at the moment, with the dollar inevitably finding support, and not only vs the usual victim JPY (USD/JPY has the highest correlation in FX with US 10Y yields), as commodity currencies are actually being hit the hardest,” said Francesco Pesole, G10 FX strategist at ING. “While the bond market is doubling down on reflationary bets, other assets are failing to show signs of upbeat risk sentiment. The risk is that the rise in U.S. yields has gathered such pace so as to start being self-defeating and cause a correction in risk assets.” The yen, which is sensitive to U.S. yields, reacted the most with the dollar jumping to as high as 106.225 yen in Asian trade, its highest since September, before retreating to 105.89 yen. “I think the dollar’s downtrend is over. At the start of the year, speculators were betting on a fall in the dollar below 100 yen. They seem to have abandoned such a view now,” said Yukio Ishizuki, senior strategist at Daiwa Securities. A sign of dwindling bets on the dollar’s fall against the yen is apparent in the options market. Short-term dollar call options, or bets on the dollar, have become more expensive than dollar puts, bets against the currency. The one-week risk-reversal spread is now in favour of dollar calls for the first time in almost five years. “If one thinks U.S. yields will rise further, we could see more gains in the dollar,” said Jun Arachi, senior currency strategist at Rakuten Securities. “I would say this trade could continue until Biden administration’s stimulus package will come into effect, possibly in March, at which point people could start unwinding their bets to ‘sell-on-fact’”. Biden tried to build public support for his $1.9 trillion coronavirus relief plan in a town hall. The New York Federal Reserve’s Empire State manufacturing report released on Tuesday offered an upbeat economic picture, with a rise in its “prices paid index” stoking concern over faster inflation. That optimism was echoed by St. Louis Fed President James Bullard, who told CNBC that U.S. financial conditions were “generally good,” and that inflation was likely to heat up this year. San Francisco Fed President Mary Daly, however, said pressures on inflation are still downward, pushing against critics warning low interest rates and government spending could overheat the U.S. economy and spark high inflation. The euro slipped 0.4% to $1.2058, though its fall was less pronounced after its gains earlier on Tuesday following strong German economic sentiment data. “Although we continue to see short-term risks to EUR/USD as balanced, it was worth yesterday to notice the USD reaction to stronger U.S. data,” said Mikael Milhøj, senior analyst at Danske Bank. “Unlike recently where we saw weakness in payrolls and CPI data take USD weaker, we now saw some evidence that positive data surprises (Empire manufacturing) are USD-positive too. This is different from last year, where positive US surprises were USD-negative by removing global deflation risks.” The positive mood on the economic outlook is underpinning risk-sensitive currencies. The British pound fell 0.3% to $1.3856, having reached its highest level since April 2018 on Tuesday. Against the euro, the pound traded at its highest level since early May at 86.84 pence per euro. The Australian dollar fell 0.2% to $0.7736, not far from Tuesday’s one-month high of $0.7805. The offshore Chinese yuan stepped back to 6.4576 per dollar after hitting a two-and-a-half-year high of 6.4010 earlier in the week.