By Alwyn Scott

NEW YORK (Reuters) -Treasury yields extended their rise on Friday while the three major U.S. stock indexes rallied to record closing highs, as markets relaxed a bit from fears of a slowing pace of economic recovery from COVID-19 that dominated trading for much of the week.

In currencies, the safe-haven yen weakened 0.32% versus the greenback at 110.14 per dollar, while the dollar index fell 0.205%, and the euro edged up 0.24% to $1.1871.

Signs of risk relief were tempered, however, as spot gold, another safe-haven asset, logged its third straight weekly gain, rising 0.3% to $1,807.65 an ounce.

Concern about a faltering recovery, driven in part by the spread of the Delta variant of the coronavirus, had reduced risk appetite early in the week and prompted flight-to-safety bond buying, with some betting the reflation trade had stalled.

That action helped push 10-year U.S. government bond yields to a 4-1/2 month low on Thursday. Data released on Friday showed investors through July 6 were reducing short bond positions, which also weighed on yields.

Still, the yield on 10-year Treasury notes rose 7.7 basis points to 1.365% on Friday.

“The downward pressure in yields from continual buying just frankly ran out of steam … at these levels,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott LLC in Philadelphia.

Stocks rose as financials and other economically focused sectors rallied from the selloff sparked by growth worries earlier in the week.

The Dow Jones Industrial Average rose 448.23 points, or 1.3%, to 34,870.16, while the broad S&P 500 gained 48.73 points, or 1.13%, to 4,369.55.

The tech-focused Nasdaq Composite added 142.13 points, or 0.98%, to 14,701.92.

Investors will next gauge risk appetite by assessing results of auctions of $38 billion of 10-year Treasury notes on Monday, and $24 billion of 30-year bonds on Tuesday.

“If auction demand is a little bit squishy, especially at the 10-year sale, then we could see 1.45% in a hurry,” LeBas said, referring to the effect on the 10-year Treasury yield if investors resume selling.

Concerns remain that vaccination alone won’t squelch the virus enough to get economies back to normal.

Pfizer and partner BioNTech said they plan to ask regulators to authorize a booster dose of their vaccine, based on evidence of greater risk of infection six months after inoculation and the spread of the highly contagious Delta variant.

That has stoked fears “that in the fall, we might be shutting down again,” said Tom di Galoma, managing director at Seaport Global Holdings in New York.

Aligned against such fears: loose monetary policy from major central banks. But that support may vanish if inflation spikes.

Oil prices added to overnight gains as U.S inventories declined. U.S. crude was up 2.3% to $74.62 per barrel and Brent was at $75.58, up 1.97% on the day.

(Additional reporting by Simon Jessop Abhinav Ramnarayan, Swati Pandey and Sujata Rao; Editing by Timothy Heritage, William Maclean and Chizu Nomiyama)

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