Dollar hovers near 4-1/2-year high vs yen

TOKYO, June 14 (Reuters) The dollar hovered near a 4-1/2-year high against the yen on Thursday and an 11-week high versus the euro, supported by a jump in U.S. benchmark yields to five-year peaks and a recovery in stock markets.

Surging U.S. interest rates over the past month on an upbeat outlook for the economy have stoked demand for dollar-denominated securities, with the Federal Reserve now expected to keep interest rates on hold.

Data on Wednesday showed that U.S. retail sales rose 1.4 percent in May, the highest since 2006, with consumers shrugging off higher gasoline prices and boosting their spending on cars.

''Investors are thinking the economy is doing well as the stock market has calmed down and they see few signs of inflation,'' says Koji Fukaya, senior currency strategist at Deutsche Bank in Tokyo. ''Unless this trend collapses, the dollar will stay firm.'' The dollar fell slightly to 122.55 yen slipping from near 122.70 yen in late New York trade the previous session when the U.S. currency hit a 4-1/2-year high of 122.77 yen on electronic trading platform EBS.

The euro was little changed at $1.3310 having plumbed an 11-week low of $1.3264 on Wednesday on EBS.

The single European currency was little changed at 163.20 yen up from a one-month low of 161.51 yen hit the previous session.

With few data releases or economic events on Thursday, traders await U.S. inflation data on Friday to gauge price pressures in the world's biggest economy, analysts say.

Expectations for the Federal Reserve to cut interest rates are receding following recent rosy U.S. data on jobs, manufacturing growth and retail sales.

''But if inflation data comes in strong, that would be negative to the U.S. economy, as it would raise inflation concerns and cool the stock market,'' Fukaya said.

Treasuries steadied from their sharp sell-off on Wednesday, easing some worries that the steep rise in yields could hurt the economy and giving Wall Street stocks a boost.

Market players are keeping an eye on the Bank of Japan's two-day meeting that starts on Thursday. The BOJ is widely expected to keep rates on hold at 0.5 percent.

With expectations running high for a BOJ rate hike in August, investors will closely watch a news conference by BOJ Governor Toshihiko Fukui on Friday after the meeting wraps up for clues on the policy outlook.

But even as the BOJ is widely seen lifting rates in coming months, this expectation has done little to help the yen. Japan's interest rates are still the lowest among industrialised countries and are expected to rise only gradually.

Japan's low rates have prompted Japanese households to shift more funds into foreign assets and spurred carry trades in which investors sell low-yielding currencies like the yen to buy higher-yielding ones.

Reuters DKS VP0650