FOREX-Dollar posts worst week in four as traders mull soft U.S. data

(Updates prices, adds comments)

* Dollar turns lower despite rise in March CPI

* Dollar index posts worst week in four

* Traders still expect later Fed rate hike

By Sam Forgione

NEW YORK, April 17 (Reuters) - The U.S. dollar posted its worst week in four against a currency basket on Friday after data showing a rise in consumer prices failed to alleviate concerns that recent soft U.S. economic data could delay the Federal Reserve's first rate hike.

The dollar rebounded against major currencies in morning trading after data showed U.S. consumer prices rose 0.2 percent in March, while closely watched core consumer prices rose 1.8 percent year-on-year, inching closer to the Fed's 2.0 percent target.

The move was short-lived, however, as traders reverted to selling the dollar on the view that the data was not strong enough to offset a batch of weaker-than-expected economic readings for the first quarter, ranging from retail sales to housing starts.

"The markets feel that the small price increase is not enough to force a June rate increase," said Chris Gaffney, president of EverBank World Markets in St. Louis. Analysts are still pricing in just one rate increase this year, sometime late in the fourth quarter.

The euro hit its highest level against the dollar in over a week at $1.08490. The dollar also hit its lowest against the yen in over three weeks at 118.565 yen and its lowest against the Swiss franc in two weeks of 0.94950 franc.

The euro notched a roughly 2 percent gain for the week against the greenback to mark its best week in four against the dollar. The euro's gain steered the dollar to its biggest weekly drop in four against a basket of major currencies.

Analysts said the dollar has become more vulnerable to pull-backs given outsized bullish bets on the currency. The greenback had rallied by as much as 30 percent since last May, hitting 12-year highs in March.

"We're going to see significant downward pressure at some point on equities as well as on the dollar as people are forced to reduce their long dollar position," said Sebastien Galy, currency strategist at Societe Generale (Paris: FR0000130809 - news) in New York.

The euro was last up 0.53 percent against the dollar at $1.08190. The dollar was last down 0.15 percent against the yen at 118.820 yen. The dollar was last down 0.44 percent against the franc at 0.95170 franc.

The dollar index was last down 0.38 percent at 97.336.

(Reporting by Sam Forgione; Additional reporting by Gertrude Chavez-Dreyfuss in New York and Jemima Kelly in London; Editing by Peter Galloway and Dan Grebler)