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NEW YORK, Sep 29 (Reuters) The dollar held onto gains on Friday after a slew of U.S. economic data, including a report which showed an inflation gauge closely watched by the Federal Reserve landed in line with expectations.

While the Fed Reserve may not raise rates again anytime soon, the data quelled investor concerns that the Fed may soon begin a rate cutting cycle.

The reports included U.S. core PCE price index, the Chicago Purchasing Managing index and the University of Michigan survey of consumer sentiment.

Elsewhere, St. Louis Federal Reserve Bank President William Poole said on Friday that inflation must be kept under wraps, but if both growth and price pressures were sufficiently weak he would back a reduction in U.S. interest rates.

''I don't think the data changes too many perceptions about what the Fed will do,'' said John McCarthy, vice president of foreign exchange, ING Capital Markets in New York. ''The dollar is reasonably well bid across the board, but I don't think we'll add significantly to that today.'' The euro EUR=>was last down 0.3 percent at $1.2660. The dollar JPY=> last traded up 0.3 percent at 118.05 yen.

The dollar gained 0.6 percent against the Swiss franc CHF=> at $1.2537, while sterling fell 0.6 percent to $1.8651 GBP=>.

The battery of U.S. economic data releases began with the U.S.

core PCE price index for August which rose 0.2 percent, matching economists' forecasts.

The year-on-year rate of non-food, nonenergy inflation rose to 2.5 percent, the highest level in more than 11 years, a Commerce Department report showed on Friday. For details, see nN29396524.

''It's dollar-positive in that it could put to rest the notion that the Fed may soon lower rates,'' said Alex Beuzelin, senior market analyst at Ruesch International in Washington D.C. ''At the end of the day, I think it's consistent with a Fed that keeps a steady hand for some time to come.'' Business activity in the U.S. Midwest unexpectedly rose in September, outstripping even the highest forecasts, according to the National Association of Purchasing Management-Chicago's index on Friday posted a surge to 62.1 from August's reading of 57.1. See nN29324552.

The University of Michigan's final reading of its September index of consumer sentiment rose to 85.4 from August's final reading of 82.0, according to a report released on Friday and seen by market sources. Economists polled by Reuters had expected a median final September reading of 85.0. nNAT002218 YEN GYRATES ON CHINA The yen had already gyrated on Friday, jumping initially on news China would issue a new foreign exchange regulation before eroding gains on a report denying this would be the case.

An official at China's foreign exchange regulator told Reuters it would issue an unspecified new regulation later on Friday, without giving more details.

Minutes later, Market News International quoted a Chinese FX regulator as saying information about the issuance of a new regulation was ''wrong'' but did not rule out some form of announcement.

China's foreign exchange regulator later said on Friday that it would step up its supervision of trade-related foreign exchange dealings by banks and certain enterprises.

The statement by the State Administration of Foreign Exchange (SAFE) did not mention any policy on the yuan CNY=CFXS.

But the news flow caused the yen, often used as a trading proxy for the tightly-controlled yuan, to trade in a volatile manner.

Markets have been fixated about any move by Beijing to let the yuan rise following a visit by U.S. Treasury Secretary Henry Paulson and ahead of China's week-long market holiday.

REUTERS PKS DB2024