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TOKYO, Aug 17 (Reuters) The dollar inched lower on Thursday after weak U.S. consumer price data ratcheted up speculation that inflation risks were subsiding, which could prompt the Federal Reserve to keep rates on hold next month.

The dollar was dealt a further blow on Wednesday from only a slight rise in the core consumer price index for July that came on the heels of surprisingly weak producer price data a day earlier.

Both sets of figures stirred expectations that the Fed could forego bumping up rates for a second straight policy meeting when it next meets in September.

Analysts said that while the chances of a Fed pause weighed on the dollar because it would likely cut the dollar's yield advantage as other currencies' rates rise, it was too early to say that U.S.

rates will stop climbing in the near future.

''The possibility that the Fed won't raise next month is increasing, but we're still going to have to look at upcoming data to arrive at a final conclusion,'' said a trader at a Japanese trust bank.

The Fed left rates on hold at 5.25 percent last week after bumping them up 17 straight times since June 2004, though it left the door open for more credit tightening if price pressures persist.

The euro held firm against the dollar and the yen, hovering near a record high touched against the Japanese currency in the previous session.

The European Central Bank earlier this month raised rates to 3 percent, while the yen has suffered from expectations that the Bank of Japan will leave rates at 0.25 percent for some time after its first rate rise in six years last month.

In early Tokyo trade the dollar was slightly lower at 115.75 yen.

That wasn't far from the previous day's low just above 115.60 yen hit after data showed core CPI in July inched up 0.2 percent from a month earlier, below forecasts for a 0.3 percent rise and after gaining 0.3 percent in each of the previous four months.

As participants start to trickle back into the Tokyo market following the peak summer holiday season, traders said they would be on the lookout for whether investors further shorten dollar positions given the currency's losses so far this week.

The euro edged up to $1.2855. This week's U.S. inflation readings have helped to push the dollar down from around $1.27 per euro since Monday.

The single European currency hovered around 148.80 yen after climbing to 148.89 yen on Wednesday, its highest level since the euro was launch in 1999.

Traders said they would watch for ongoing yen selling on crosses, given that low volatility this week had created prime conditions to execute carry trades, in which dealers borrow currencies with low interest rates to buy higher-yielding ones.

REUTERS PDS PM0743