* Graphic: World FX rates tmsnrt.rs/2RBWI5E LONDON, Oct 22 (Reuters) - The U.S. dollar edged lower on Friday and is set for a second consecutive week of decline as news that heavily indebted property firm China Evergrande Group had averted a default buoyed appetite for risky assets. With markets nearly discounting the prospects of a first U.S. rate hike by next July in recent days, the dollar has become more sensitive to risk sentiment. Yields on benchmark 10-year Treasury notes were trading just below April highs. On a weekly basis though, the antipodean currencies including the Aussie and the kiwi are the clear winners followed by the Norwegian crown as investors pumped money into stocks and high-yielding currencies. “The winners tell us that risk sentiment is thriving, despite 10- year note yields closing in on April’s highs. If higher yields don’t damage sentiment, then yields will go on rising,” said Kit Juckes, a currency strategist at Societe Generale. Concerns over Evergrande, the embattled property developer whose liabilities are equal to 2% of China’s gross domestic product, had sent investors flocking to the perceived safe-haven currencies like the U.S. dollar and government debt. Worries of economic contagion have seen swathes of other heavily indebted developers hit with credit rating downgrades. But days before a deadline that would have plunged the developer into formal default and sent shockwaves through global markets, the company supplied funds to pay interest on a U.S. dollar bond. “So while this is good news in terms of a formal imminent default being avoided over the weekend, uncertainty is set to remain high until there is further clarity on Evergrande’s position and the position of other property companies in China,” MUFG strategists said in a daily note. The dollar index edged 0.1% lower to 93.62, putting it on track for a second straight week of falls. But the broader market narrative remained supportive of more U.S. dollar gains as rising bond yields on the back of firmer inflation expectations are expected to lend support to the greenback. Yield differentials between comparable U.S. and German debt held at a chunky 177 bps. Moreover, rising expectations that the U.S. Federal Reserve will be among the leaders to tighten monetary policy before other major central banks is also prompting investors like UBS Wealth Management to keep the dollar as its most preferred currency in its portfolio. Elsewhere, the Australian dollar was at $0.7503, up 0.5% on the day, nearing Thursday’s three-month top, as the boost to the China-exposed currency from Evergrande’s news was outweighed by action from the Reserve Bank of Australia to stem a bond sell-off, as well as the pause in energy price rises. The RBA said on Friday it had stepped in to defend its yield target for the first time in eight months, spending A$1 billion ($750 million) to dampen an aggressive bonds sell-off as traders have bet on inflation pulling forward rate hikes. Elsewhere, the euro was little changed at $1.1639, while the yen wobbled within sight of its multi-year lows, with one dollar worth 113.83 yen, compared with 114.69 earlier in the week, a four-year low. Reporting by Saikat Chatterjee; Editing by Emelia Sithole-Matarise and Chizu Nomiyama