TOKYO, Jan 12 The dollar hit a 13-month peak against the yen and a 1-1/2-month high versu

TOKYO, Jan 12 (Reuters) The dollar hit a 13-month peak against the yen and a 1-1/2-month high versus the euro on Friday as investors waited for U.S. data to help gauge the chances of a Federal Reserve interest rate cut later this year.

A string of solid U.S. economic data over the past week has boosted expectations that the Fed will be in no hurry to lower the funds rate from 5.25 percent, as many had expected towards the end of 2006.

Investors will pore over a retail sales report for December at 1330 GMT for more clues on the strength of the U.S. economy and the Fed's future policy path.

''The dollar's strong performance stands out as expectations for Fed rate cuts are receding,'' said Tohru Sasaki, chief forex strategist at JPMorgan Chase Bank in Tokyo.

''The risk of better-than-expected retail sales data prompting dollar buying is high,'' Sasaki said.

Economists expect the headline retail sales number to show a 0.6 percent rise in the holiday shopping month of December, slowing from the robust 1.0 percent increase in November.

The euro extended its slide a day after European Central Bank President Jean-Claude Trichet failed to signal a February rate rise in comments made after a policy meeting.

The ECB left rates at 3.50 percent at the meeting on Thursday, as expected, but many market players had hoped for a clear signal for a rate rise next month.

In a Reuters poll taken after the meeting, the median forecast showed an 80 percent chance of a 25-basis-point rate hike in March. For details see The euro edged up to $1.2900 after touching a 1-1/2-month low of $1.2877 on electronic trading platform EBS earlier on Friday.

The dollar reached a 13-month peak of 120.74 yen on EBS before easing to 120.55 yen little changed on the day.

The U.S. currency surged on Thursday past the key 120 yen level for the first time since December 2005, despite the possibility that the Bank of Japan could raise the overnight call rate to a decade-high 0.5 percent from 0.25 percent next week.

Investors believe a rate rise would not change the yen's position as the lowest-yielding currency among industrialised countries or dull the market's interest to borrow yen and use the funds to buy higher-yielding assets in the carry trade.

''The dollar's rally against the yen is unlikely to end soon as more investors believe the yield difference between the two will remain wide,'' said Nobuo Ibaraki, forex manager at Nomura Trust and Banking Co.

BOJ Governor Toshihiko Fukui provided no clues on a January rate increase in a speech on Friday to a meeting of the BOJ's regional branch managers, only reiterating that the central bank will closely watch economic and price conditions for policy.

In the BOJ's report on regional economic conditions, the central bank said the economy was expanding moderately and all regions were growing or in a recovery trend.

It also said retail sales, a soft spot for the economy, were buoyant in many regions at year-end.

Sterling held steady around $1.9465 The pound rallied to a 10-year high on a trade-weighted basis and 18-month highs against the euro on Thursday as the Bank of England unexpectedly lift interest rates to 5.25 percent, matching the U.S. funds rate.

The euro changed hands at 66.29 pence after having tumbled 1 percent on Thursday to a low of 66.26 pence, suffering its biggest one-day drop against the pound in 19 months.

REUTERS CS DB1141