FOREX-Dollar-buying momentum trumps weak U.S. data, euro skids lower

* U.S. data disappoints vs forecasts, focus now on Fed meeting

* Euro slumps to fresh 12-year low vs. dollar, weaker vs yen

* Sterling drops to near five-year low (Adds comment, fresh prices)

By Daniel Bases

NEW YORK, March 13 (Reuters) - Dollar-buying momentum lifted the greenback to a fresh 12-year high against the euro on Friday, overcoming disappointing U.S. inflation and consumer sentiment data that would normally weaken it.

Positioning ahead of the Federal Reserve's monetary policy meeting next week was also seen as a potential reason for the seemingly incongruous move up by the dollar, analysts said.

The euro fell over 1.60 percent to a low of $1.04625 on the EBS trading platform.

"What makes us uncomfortable is that the dollar's drive higher is not being supported by front-end yields. They are down the past few days. It is not a yield advantage driving the dollar higher, but it feels like a momentum market," said Vassili Serebriakov, currency strategist at BNP Paribas (Xetra: 887771 - news) in New (KOSDAQ: 160550.KQ - news) York.

"We see a risk of a dollar pullback on the Fed next week but a bias to buy on that," he said.

U.S. producer prices fell 0.6 percent last month, the first drop since the series was revamped in 2009, pointing to tame inflation that could argue against an anticipated June interest rate increase by the Fed.

In addition the University of Michigan's consumer sentiment index fell in March, although inflation expectations rose for a second straight month to its highest since September.

The European Central Bank's quantitative easing program, meant to stimulate borrowing and investment, stands in contrast to the expectation the Fed starts raising interest rates later this year, enhancing the dollar's yield advantage.

"Dollar-buying momentum is overcoming rising European yields. It remains unclear what's driving this higher because the data and the curves would argue more (for) its weakness," said Sebastian Galy, senior currency strategist at Societe Generale in New York.

Galy referred to a pause in European bond buying that has driven yields to record lows and in some cases negative levels.

Sterling fell over 1 percent to a fresh near five-year low of $1.4697. Bank of England Governor Mark Carney said on Thursday he was in no hurry to raise interest rates, fueling cable's weakness.

The euro dropped 1.55 percent to 126.915 yen, its weakest point in over 1-1/2 years. Meanwhile the dollar was little changed against the yen, rising just 0.11 percent to 121.395. (Additional reporting by Patrick Graham and Ahmed Aboulenein in London; Editing by James Dalgleish and Andrew Hay)