FOREX-Dollar trades at 4-1/2-year high vs yen

(Recasts; updates prices, adds comment)

NEW YORK, June 13 (Reuters) - The dollar climbed to a 4-1/2-year high against the yen on Wednesday, helped by data indicating U.S. retail sales growth in May was the highest since January 2006, which many investors took as a sign of a pick-up in U.S. economic growth.

Limiting the dollar's gains was a dip in the U.S. benchmark 10-year Treasury note yield US10YT=RR, which fell from five-year highs even as investors seem more willing to bet that the Federal Reserve's next move could be a hike in interest rates. For more details, click [ID:nN13360867]

Higher U.S. interest rates raise the attractiveness of dollar-denominated securities and stoke demand for the dollars to buy them.

"The market is interest rate focused and retail sales were really quite strong suggesting economists may revise up their forecast for the second quarter even further," said Meg Browne, currency strategist at Brown Brothers Harriman. "But a lot of the good news is already in the market."

In late afternoon trading, the dollar rose 0.9 percent against the yen, changing hands at about 122.73 yen JPY=, close to the session high of 122.76 yen, a 4-1/2-year high.

Dollar/yen also got a boost in technical trading triggered first by investors selling the yen against the euro, said Brian Dolan, chief FX strategist, at Forex.com in Bedminster, New Jersey.

Investors broke through initial resistance on the euro/yen EURJPY= at 162.80 which had been around the high in the currency pair for the past several sessions.

"Once we got beyond that, dollar/yen popped as well," Dolan said. Euro/yen last changed hands up 0.9 percent at 163.35 yen.

The euro EUR= was trading at $1.3304, little changed on the day. The euro had plumbed an 11-week low of $1.3264 earlier in the day.

The dollar rose to a four-month high of 1.2469 Swiss francs CHF=, up for its fifth consecutive session before surrendering some gains to trade at 1.2451 francs. Sterling fell 0.1 percent to $1.9727 GBP=.

GROWTH BULLS IN CHARGE OF DOLLAR

Some U.S. investment banks in the last few weeks have upwardly revised their views on U.S. economic growth in the second quarter to a 4 percent annualized rate, which would be a sharp rebound from the sluggish first quarter.

Markets have also reflected expectations of faster growth. While U.S. Treasury debt rose on Wednesday largely due to short-covering, yields have risen steeply since April on a steady stream of stronger economic data, pulling the dollar higher in their wake.

Over the last week, bond markets have even begun to price in a chance that the Federal Reserve will raise interest rates next year.

The dollar generally strengthens when dealers anticipate a rise in U.S. interest rates and the dollar index .DXY, a gauge of the greenback's performance against a basket of six major currencies, briefly rose above its 100-day moving average for the first time since mid-February, a positive technical signal for the markets.

On Wednesday, the spread between the implied U.S. interest rate in December 2008 and the euro zone's has widened to 70 basis points, up from around 43 basis points at the end of April, according to futures markets.

The market is also looking at U.S. bond yields relative to those overseas, said Doug Roberts, chief investment strategist for Channel Capital Research in Shrewsbury, New Jersey.

"Europe and Japan won't aggressively raise rates if the U.S. doesn't, and that will add to strength in the dollar," Roberts said. (Additional reporting by Gertrude Chavez-Dreyfuss)