FOREX-Dollar bolstered by rate outlook, G8 eyed

* Dlr index on course for best week in 3 yrs ahead of G8

* Euro pressured as officials temper rate hike expectations

* All eyes on G8 ministers for clues on FX policy

(Changes dateline, byline, adds quotes, updates prices)

By Simon Falushi

LONDON, June 13 (Reuters) - The dollar rose against the euro and the yen on Friday, and was on track for its best week in over three years against a basket of currencies as investors focused on a weekend meeting of G8 finance ministers.

The U.S. currency benefitted this week as the government and Federal Reserve took aim at inflation and its impact on the dollar, raising the prospect of dollar-buying intervention. A further boost came on Thursday as U.S. retail sales data surprised on the upside. Click on [ID:nN11255522].

The U.S. currency could derive further support if U.S. Treasury Secretary Henry Paulson and other finance ministers attending a Group of Eight finance ministers meeting in Japan issue dollar-supportive comments.

"If the tone of (the G8) statement is unchanged from the last meeting when coordinated action was mentioned, this would give more support to the dollar," said Michael Klawitter, currency strategist at Dresdner Kleinwort in Frankfurt.

(For ANALYSIS on implications of the G8 meeting on the currencies, click on [ID:nT167228].)

However Bank of Japan Governor Masaaki Shirakawa said governments should not single out the impact on forex when guiding policy [ID:nTKF003210].

The euro has lost around four cents against the dollar since Monday as European Central Bank board members dampened expectations for a series of rate hikes after flagging a rise in July.

By 0852 GMT, the euro was down 0.3 percent at $1.5394 EUR=. The dollar index was up 0.2 percent at 73.959, up more than 2 percent on the week and heading for its biggest weekly gain since spring 2005 .DXY.

The dollar also edged up to 108.14 yen, its highest in nearly four months. For the week, the dollar is up 3 percent against the yen, poised for its biggest weekly gain in four years.

The Bank of Japan kept interest rates steady at 0.5 percent on Friday, as widely expected. Market players were also closely watching the outcome of Ireland's referendum on the European Union reform treaty, with results expected on Friday.

The rejection of the EU constitution by France and the Netherlands in 2005 was one factor behind the euro's fall that year. But analysts are divided on whether the Irish vote will have much of an impact on the single currency this time.

G8 WATCH

G8 finance ministers will focus on the global economy and soaring oil and food prices and while currencies are not expected to be the chief topic of conversation, ministers are bound to discuss the impact of rampant oil on the dollar.

The euro dipped briefly after French Economy Minister Christine Lagarde said on arriving in Japan that the recent strengthening of the dollar was "satisfying" and that currencies will be discussed, according to media reports. [ID:nT284996]

Japanese Finance Minister Fukushiro Nukaga said he had discussed currencies with U.S. Treasury Secretary Paulson.

Paulson said earlier in the week he would never rule out currency intervention as a potential policy tool to stem the dollar's slide, giving the U.S. currency a boost.

His comments came after Fed Chairman Ben Bernanke last week surprised the market with a rare warning that a weak dollar was adding to price pressures, signalling to investors a shift in Washington's view on the dollar.

Market players will look to the language of the communique published at the end of the G8 meeting to gauge the likelihood of any action from central banks.

"We believe that there could be stronger language on FX in the communique but it is likely to stop short of indicating that intervention is likely, which could still be enough to boost the dollar," said Calyon in a note to clients.

Investors will look to U.S. CPI data at 1230 GMT for more clues on monetary policy outlook. Annual inflation is expected to hold at 3.9 percent in May. (Editing by Gerrard Raven)