Dollar rallies on U.S. price data, Fed's Yellen rate talk

NEW YORK (Reuters) - The U.S. dollar turned higher on Friday, spurred off early losses after a U.S. inflation report that indicated underlying pressures are building bolstered the case for the U.S. Federal Reserve to raise interest rates later this year.

Remarks by Fed Chair Janet Yellen later in the day that a rate increase was on track this year added support for the greenback.

"Stronger inflation, along with stronger growth data, is something that the Fed certainly wants to see," said Brian Daingerfield, currency strategist at the Royal Bank of Scotland in Stamford, Connecticut. "Rate hike expectations have likely been brought forward as a result of some of the stronger data today."

While the U.S. Consumer Price Index gained only 0.1 percent in April, down from the prior month, the core CPI, which strips out volatile food and energy costs, increased 0.3 percent, the largest rise since January 2013, after advancing 0.2 percent in March.

The euro fell 0.99 percent to a session low of $1.10025 on the EBS trading platform. It was the weakest point since April 29. For the week the euro is down 3.83 percent, its worst performance since September 2011 and not far from an even poorer performance in August 2010.

Against the yen, the dollar climbed 0.45 percent, to 121.57 yen, a 10-week high. For the week, the dollar is up 1.95 percent against the Japanese currency, its best weekly tally since early December.

Yellen said she expected the U.S. central bank to raise interest rates this year, as the U.S. economy was on course to bounce back from a sluggish first quarter and headwinds at home and abroad waned.

Demand for U.S. dollars firmed on the speech.

"June appears to be out of the question," Alan Gayle, senior investment strategist at Ridgeworth Investments in Atlanta, said of a possible rate hike. "I think September is still a question mark, but Yellen seems to be confident that the economy will improve enough that the Federal Reserve will safely begin to raise interest rates this year. That is putting a little gas behind the dollar."

(Editing by Lisa Von Ahn and Leslie Adler)