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TOKYO, Apr 14 (Reuters) The dollar was little changed on Friday in thin Easter holiday trading, though it was underpinned by expectations the US Federal Reserve will raise interest rates further next month.

The dollar received a brief, modest boost after Fed Governor Mark Olson, speaking in Arkansas late on Thursday local time, said it could in theory be appropriate for the Fed to raise rates beyond a ''neutral'' level.

The Chinese central bank's announcement that Beijing will allow Chinese banks and funds to invest overseas also helped buoy the dollar as such a capital flow out of China could help mitigate the upward pressure on the yuan against the dollar.

But the dollar's gains were limited and traders expect activity to dwindle ahead of a series of potentially market-moving events next week, including Chinese President Hu Jintao's first official visit to the United States.

''Japanese clients are not so aggressive this morning. Investors who heard this news from the Bank of China and Olson normally would tell us to buy the dollar,'' said a chief trader at a European investment bank in Tokyo, lamenting a lack of interest due to the holiday mode. The dollar was trading at 118.62/66 yen at 0032 GMT, up from about 118.50 yen late in New York trading on Thursday.

The euro stood at $1.2109/11 virtually unchanged.

Markets in Australia, New Zealand, Britain, France, Germany Italy, Switzerland, Canada and the United States will be off for the Good Friday holiday.

RISING YIELDS Even a rise in the 10-year U.S. Treasury yield above 5 per cent for the first time in nearly four years was having little impact on the currency market, traders said.

The yield broke above that psychological milestone on Thursday, helped by data showing a rebound in U.S. retail sales in March and a modest improvement in April consumer sentiment.

''Even the interest rate story cannot be a decisive factor at the moment because rates in the U.S., Europe and Japan are all headed in the same direction,'' said Daisuke Uno, strategist at Sumitomo Mitsui Banking Corp.

Close on the heels of the U.S. yield spike, The 10-year Japanese government bond yield hit a 5-1/2-year high of 1.970 percent on Friday.

Currency investors next week will also be taking a look at February U.S. capital flows data on Monday, and U.S. inflation and housing figures later in the week.

The Chinese president will visit Washington on Thursday, and finance ministers and central bank chiefs from the Group of Seven leading economies will meet in Washington the following day.

The economic news calendar for the rest of Friday was thin. The Japanese government was to issue its monthly economic report around 0340 GMT.

REUTERS PG BD0630