FOREX-Euro edges higher as Greece says close to debt deal

* Greece says it is closer than ever to a deal

* Merkel says strong euro makes reforms difficult

* U.S. data boosts rate-hike view (Updates prices, adds comment)

By Gertrude Chavez-Dreyfuss

NEW YORK, June 12 (Reuters) - The euro inched higher against the dollar on Friday as Greece said it was getting closer to a deal on its debt, which could stave off default for the cash-strapped country.

On Friday, a Greek government official said the country was ready to submit counterproposals and is closer than ever to an agreement with its creditors.

"The news gives hope Greece can avert default and stay in the eurozone," said Joe Manimbo, senior market analyst at Commonwealth Foreign Exchange in Washington. "The euro seems to be at its best when there is good news on Greece."

Earlier in the session, the euro had been under pressure after German Chancellor Angela Merkel said a strong currency made it harder for the likes of Spain and Portugal to reap the benefits of economic reform.

In late trading, the euro rallied from session lows to trade slightly higher on the day at $1.1259.

"The ongoing shift back and forth about Greece has kept the euro weak the last few days," said Minh Trang, senior currency trader at Silicon Valley Bank in Santa Clara, California. "There should be a little more downside."

Against the yen, the dollar was flat at 123.44 yen.

The dollar reacted little to fresh data on U.S. inflation and consumer sentiment, even though both reports were seen as positive for the greenback.

U.S. producer prices in May recorded their biggest increase in more than 2-1/2 years as the cost of gasoline and food rose.

U.S. consumer sentiment, meanwhile, rose more than expected, a survey showed. The University of Michigan's preliminary June reading on the overall index on consumer sentiment was 94.6, up from the May reading of 90.7.

The data reinforced expectations that the Federal Reserve will raise interest rates at least once this year.

Next (Other OTC: NXGPF - news) week, the Fed meets for a two-day policy meeting. Investors are hoping the Federal Open Market Committee will provide an indication of the timing of first rate hike.

A more hawkish Fed is likely to underpin the dollar, said Jane Foley, senior FX strategist at Rabobank in London, although she added that the rise in the greenback between July and April might already have acted as monetary tightening.

Foley said the dollar's strength could affect the timing of the Fed's rate increase. (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Patrick Graham in London; Editing by Lisa Von Ahn)