FOREX-Dollar near record low vs euro on subprime jitters

TOKYO, July 13 (Reuters) - The dollar hovered near an all-time low against the euro and a 26-year trough versus sterling on Friday, staying under pressure due to lingering worries about the U.S. subprime mortgage sector.

Concerns that the subprime mortgage woes will spill over the broader economy has sparked sell-offs in the dollar and U.S. stocks earlier in the week. Subprime loans are lendings made to borrowers with poor credit histories.

Activity in the Tokyo market was subdued on Friday as dealers were reluctant to take fresh positions ahead of a three-day weekend. Japanese financial markets will be closed on Monday for a national holiday.

The market's focus is on U.S. retail sales data for June at 1230 GMT, and traders said a weak reading was likely to further damage sentiment for the dollar.

"Market participants continue to feel a vague anxiety about the subprime mortgage market," said a senior trader at a Japanese brokerage. "Given the dollar's weakness against European currencies, the market is more likely to react to negative news for the dollar."

San Francisco Federal Reserve President Janet Yellen said on Thursday that current U.S. interest rate policy should promote a gradual drop in inflation, but the recent rapid deceleration in price pressures could be hard to sustain.

The market gave muted reaction to comments from Yellen.

The yen hit a fresh all-time low against the euro in early Asian trade a day after the Bank of Japan failed to cement expectations that the central bank will lift interest rates to a 12-year high of 0.75 percent from currently 0.5 percent in August.

The BOJ left the key overnight call rate unchanged on Thursday.

Still, a majority of market players expect the BOJ to raise interest rates in August, a Reuters poll taken after Thursday's post-meeting news conference by BOJ Governor Toshihiko Fukui showed. See [BOJ/INT]

The euro eased 0.1 percent from late New York trade to $1.3780 EUR=, hovering within reach of a record-high $1.3799 hit in the previous session on electronic trading platform EBS.

Against the yen, the single currency hit a record high of 168.93 yen EURJPY=R.

The dollar edged up 0.1 percent to 122.55 yen JPY=.

Sterling stood at $2.0285 GBP=D4. It struck a 26-year high of $2.0365 on Thursday, according to Reuters data.