FOREX-Dlr boosted after SNB rate verdict, sterling rallies

* Dlr index rises; boosted after SNB stands pat on rates

* Sterling buoyed by shock jump in UK retail sales

* Economic concerns remain ahead of U.S. data

(Changes byline, adds quotes, updates prices)

By Michael Taylor

LONDON, June 19 (Reuters) - The dollar rose against a basket of major currencies on Thursday, boosted by the Swiss National Bank's decision to freeze interest rates at 2.75 percent, while a surprise jump in British retail sales revived sterling.

The pound hit its highest level in over a week against the dollar and rallied versus the euro after the strong reading of British retail sales raised speculation that the Bank of England might increase British borrowing costs from 5 percent.

Rising money market rates and growing inflationary pressures had led a significant minority of investors to expect a SNB rate rise from 2.75 percent, taking the Swissie to a 17-year high against the yen overnight. But the rally waned as the bank held rates for a third successive quarter.

Swiss National Bank Chairman Jean-Pierre Roth said however, that an interest rate increase in September was a possibility.

Analysts said that investors might see the SNB decision as a reason to scale back expectations for European Central Bank rate rises after an expected increase in July.

"The majority expected the SNB to keep rates on hold but there was a minority thinking that they could hike rates just because they have a meeting every three months," said Antje Praefcke, currency strategist at Commerzbank Corporates & Markets.

"The SNB also pointed out that it would act very quickly in case inflation was about to run away. They made the detail clear that they may act earlier than their regular meeting...this does not exclude an inter-quarterly move."

The dollar's outlook was still clouded however, with poor economic data and persistent concerns over the U.S. economic slowdown and global credit crunch damping expectations for a near-term U.S. interest rate rise from the current 2 percent.

As of Wednesday, U.S. short-term interest rate futures showed a 48 percent chance of the Fed raising rates by 25 basis points in August, down from 90 percent earlier this week.

By 1116 GMT, the dollar was up 0.1 percent on the day versus a basket of six major currencies .DXY, having earlier hit a one-week low at 73.205.

Against the Swiss franc, the dollar rose 0.75 percent to 1.0445 francs, reversing earlier losses made in the run up to the SNB decision CHF=. The franc also fell half a percent versus the euro EURCHF=.

The franc had hit a 17-year high of 104.29 yen CHFJPY=R overnight as Japanese equities lost ground.

The euro fell 0.2 percent to $1.5496 EUR= and 166.90 yen EURJPY=R, but stayed within sight of an 11-month high hit on Wednesday.

Looking ahead, investors will eye the U.S. weekly jobless claims due at 1230 GMT, while the Philadelphia Federal Reserve business activity index at 1400 GMT is expected to come in at -10 for June, compared with -15.6 in May.

UK RETAIL SURPRISE

Sterling spiked after a shock rise in British retail sales, which highlighted inflationary anxiety among investors.

The Office for National Statistics said sales surged 3.5 percent last month, putting them up 8.1 percent on the year. The annual rate was the strongest since April 2002 [nONS003577].

The figures were much stronger than forecasts for a monthly fall of 0.1 percent for an annual rise of 4.1 percent, also prompting a recovery in British equities, which reversed losses to trade higher.

"We believe the Bank of England wants to see more data before putting too much emphasis on it," said Danske Bank analysts in a note to clients.

"The risk of a hike is rising in the short term, but we still believe it to be below 50 percent."

Sterling rallied to $1.9708 GBP=, up 0.6 percent on the day. It also climbed against the euro, pushing the single currency down 0.8 percent to 78.58 pence EURGBP=.

(Additional reporting by Veronica Brown and Bate Felix; Editing by Gerrard Raven)