OVERNIGHT

The U.S. dollar rallied overnight in Asian trading and coupled with the Japanese Nikki surging 3.5% could push U.S. stocks higher later today.

TOKYO (Reuters) - The dollar gained on Monday after upbeat data restored some calm to the financial markets, prompting equities to rally back from deep losses and triggering a rise in Treasury yields.

The greenback got a further lift against the yen after reports that Japan's $1.2 trillion Government Pension Investment Fund (GPIF) could boost foreign asset holdings, seen spurring demand for foreign currencies.

The dollar was up 0.4 percent at 107.345 yen, pulling further away from a five-week low of 105.195 hit the previous week.

The U.S. currency hit a six-year high at the start of this month, poking above 110 yen - a level at which nearly half of Japanese firms think the government should start defending it, according to a Reuters poll."The dollar could extend its gains to the mid-107 yen level if equity market sentiment in Asia and Europe improve," said Masafumi Yamamoto, a market strategist for Praevidentia Strategy in Tokyo. "The GPIF news is also rare as it touches on figures related to foreign asset allocations and could be leading to further selling of the yen."

On Friday, data showed U.S. consumer sentiment come in stronger than expected, restoring some faith in the U.S. economy and calming nerves after a week that saw Wall Street buffeted and Treasury yields fall sharply on global growth concerns.

Taking tips from Friday's rebound on Wall Street, Tokyo's Nikkei, which hit a five-month trough on 
Friday, surged 3.5 percent.

In focus was whether the equity markets can retain their semblance of calm in the face of coming data.

"There are not a lot of immediate factors today for currencies, which will continue to watch changes in risk sentiment while awaiting data starting tomorrow such as those from China," said Shinichiro Kadota, chief Japan FX strategist at Barclays Bank in Tokyo

Indicators including September industrial output, retail sales and third quarter GDP will be released in China on Tuesday.

Other data this week that could have a bearing on global risk sentiment includes U.S. inflation on Wednesday and euro zone and German PMI indexes on Thursday.

The two-year U.S. Treasury yield, often correlated to the dollar's performance, had risen to 0.378 percent from a 17-month trough of 0.244 percent reached last week.

The euro was steady at $1.2764 after pulling away from a three-week peak of $1.2887 scaled last week.

The dollar index, which measures the greenback against a basket of six major currencies, rose 0.1 percent to 85.209 after dropping to a three-week trough of 84.472.

Commodity currencies, sensitive to perceived shifts in global demand, also fared better as pessimism over the economy was tempered and risk sentiment declined.

Meanwhile, in Europe equities are expected to rise today, Reuters reports.

PARIS, Oct 20 - European stocks were set to rise on Monday, adding to the previous session's sharp rebound after robust U.S. macro data helped soothe worries over the pace of global growth. Financial spreadbetters expected Britain's FTSE 100 to open 26 to 27 points higher, or up 0.4 percent, Germany's DAX to open 34 to 35 points higher, or up 0.4 percent, and France's CAC 40 to open flat to up by 1 point, or 0.02 percent higher. On Friday, the Thomson Reuters/University of Michigan index of U.S. consumer sentiment was surprisingly strong, rising to its highest level in more than seven years....