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TOKYO, Sep 15 (Reuters) The dollar held steady against the yen and the euro on Friday as investors kept positions light ahead of key U.S. inflation data and a meeting of the Group of Seven finance ministers and central bankers.

The dollar had erased some losses against the euro on Thursday after stronger-than-expected U.S. retail sales data raised doubts about the degree to which growth was slowing.

A strong reading in U.S. consumer prices for August due later in the session could fuel expectations that the Federal Reserve would need to raise interest rates further to contain inflation, which could underpin the dollar, traders said.

At the same time, any rise by the dollar against the yen could be limited by speculation that Saturday's G7 meeting in Singapore could discuss trade imbalances and currencies that are regarded as being kept weak so as to bolster exports.

''There is little incentive to trade actively this session ahead of the consumer price data and the G7,'' said a trader at a Japanese trust bank. A long weekend in Japan was also making investors wary of holding huge positions, he said.

Japanese financial markets will be closed on Monday for a national holiday.

''The bias is for the dollar to be softer during Asian trading given a risk of some yen-positive factors emerging from the G7,'' such as European officials expressing concern about the euro's strength against the yen or discussing trade surpluses, particularly China's, the trader said.

The dollar shed about 2 percent versus the yen a day after the April meeting of the G7 issued a statement calling for a rise in Asian currencies to help curb global imbalances.

''In emerging Asia, particularly China, greater flexibility in exchange rates is critical to allow necessary appreciations,'' the G7 statement in April said.

EYES ON CPI Before the G7, traders said the market will focus on U.S.

consumer price data due at 1230 GMT. The core reading, which excludes food and energy costs, is expected to have risen 0.2 percent in August from the previous month.

A 0.2 percent rise in August U.S. retail sales announced on Thursday exceeded economists' forecasts for a 0.1 percent drop.

Traders said expectations remained intact for the Fed to keep the federal funds rate steady at 5.25 percent at its policy meeting next Wednesday, but strong inflation data could raise speculation about a further rate rise later in the year.

After raising interest rates 17 consecutive times since mid-2004, the Fed paused its monetary tightening last month.

''If the consumer prices top expectations, it will boost speculation for a further rate hike and support the dollar, while a figure short of forecasts will weigh on the currency,'' said Hideki Hayashi, global strategist at Shinko Securities.

There was little immediate market reaction to the Japanese government's monthly economic assessment.

The government kept its assessment unchanged but effectively upgraded its view on prices by removing the word ''deflation'' from the document for the first time in more than five years. But it stopped short of declaring an end to deflation.

The euro has been supported by market views that the European Central Bank will boost interest rates next month and likely beyond that. The single currency rose on Thursday after the ECB warned of inflationary pressures.

The dollar stood at 117.64 yen as of 0230 GMT, little changed from around 117.60 yen in late U.S. trading.

The euro also barely moved at $1.2720 Against the yen, it was trading around 149.58 yen compared with around 149.63 yen in late New York.

REUTERS MQA BD1001