* Dollar index holds firm after rising 0.5 pct overnight
* Trade woes linger but market turns focus to Fed meeting
* Trump reportedly removes national security advisor, USD/JPY dips
* Canadian dollar hits 8-mth lows on soft data, trade woes (Adds details and quotes, updates prices)
By Shinichi Saoshiro
TOKYO, March 16 (Reuters) - The dollar held gains against a basket of peers on Friday, as recent concerns about the currency arising from trade tensions eased slightly and next week’s Federal Reserve policy meeting came into focus.
The greenback, however, dipped versus the yen following a report by the Washington Post that U.S. President Donald Trump has decided to remove H.R. McMaster as his national security advisor.
Earlier this week, the U.S. currency took a hit after Trump dismissed Secretary of State Rex Tillerson as investors grew increasingly nervous about White House personnel changes.
The dollar was 0.3 percent lower at 106.020 yen, though managing to stay above an eight-day low of 105.790 set on Thursday.
The greenback was down about 0.5 percent on the week against the safe haven yen, which was boosted earlier as a political scandal engulfed Japanese Prime Minister Shinzo Abe, casting doubts on the sustainability of his economic stimulus policies.
“The best explanation for the impact the ongoing personnel changes taking place in the White House is that the dollar stands to weaken as it gets easier for President Trump to pursue protectionist policies,” said Daisuke Karakama, chief market economist at Mizuho Bank in Tokyo.
The dollar index versus a group of six major currencies was a shade higher at 90.156 after climbing 0.5 percent the previous day.
Prior to the overnight bounce, the index had fallen for three straight sessions as fears of a global trade war grew amid signs of rising U.S. protectionism.
“U.S. protectionism is a key factor, but it is also a theme with a long timeframe,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.
“The market perhaps reacted excessively and the dollar was oversold, and now we are seeing those moves being balanced out as participants turn their focus on other events.”
The two-day Federal Open Market Committee meeting begins on March 19 at which the U.S. central bank is expected to raise interest rates for the first time this year.
The euro edged down 0.1 percent to $1.2296 after declining 0.5 percent overnight. The common currency was little changed on the week, failing to make much headway against its struggling U.S. peer as the European Central Bank has stressed that its exit from easy monetary policy would be very slow.
The Canadian dollar struggled near an eight-month low plumbed overnight, when soft housing data reinforced views that the Bank of Canada could slow down the pace of its interest rate hikes.
The loonie also came under pressure after President Trump’s comments on commerce with Canada renewed trade concerns.
The Canadian dollar was little traded at C$1.3065 per dollar after retreating to C$1.3072, its weakest since late June 2017.
The Australian and New Zealand dollars were about 0.25 percent lower at $0.7780 and $0.7255, respectively, after suffering large losses overnight against the broadly higher U.S. dollar. (Reporting by Shinichi Saoshiro; Editing by Sam Holmes)