* Dollar falls after data dents growth optimism
* U.S. consumer sentiment tumbles, inflation not yet a concern
* Sterling rallies on BOE's King comments
By Wanfeng Zhou
NEW YORK, March 15 The dollar fell from a seven-month high against major currencies on Friday after U.S. data dented optimism about the economy and reinforced expectations the Federal Reserve will continue its bond-buying program for the foreseeable future.
U.S. consumer sentiment tumbled to its lowest since December 2011 in early March, while manufacturing activity in the New York cooled slightly. Separate data showed U.S. consumer prices rose in February as the cost of gasoline surged, but there was little sign of a broad pickup in inflation.
"It looks like we still have some scope to continue with QE," said Andrew Dilz, foreign currency trader at Tempus Consulting in Washington, referring to the Fed's bond-buying, or quantitative easing program.
The Fed meets next week and looks set to keep buying $85 billion a month in mortgage and Treasury bonds in an effort to encourage investment and bolster a weak economic recovery by lee . The program is aimed at keeping long-term interest rates low, thus making the dollar less alluring as a currency for deposits.
Traders also booked profits on the dollar's latest sharp rally after positive news on U.S. employment and consumer spending, released earlier in the week, raised expectations U.S. growth is outperforming other major economies.
Strong gains in other currencies added to pressure on the dollar. Sterling jumped after the Bank of England's governor suggested he did not want the British pound to fall any further. The euro also gained on the prospect of EU leaders looking at short-term ways of boosting faltering euro zone economies.
The dollar index, which tracks the greenback versus a basket of currencies, fell 0.5 percent to 82.161, moving away from a high of 83.166, the strongest since early August.
The euro rose 0.5 percent to $1.3072, having hit a session high of $1.3107 on Reuters data and recovering from Thursday's three-month low of $1.2910. Traders said the euro's failure to break below $1.29 encouraged profit-taking on dollar gains. Strong chart support is at the 200-day moving average at $1.2869.
Arne Lohmann Rasmussen, head of FX research at Dankse Bank in Copenhagen, said the euro could recover further towards $1.32 in coming weeks. Danske Bank forecast it to rise to $1.35 in three to six months but believe this will mark its peak.
Analysts said the euro could face turbulence as the new Italian parliament convenes on Friday for the first time after inconclusive elections late last month.
The dollar fell 0.5 percent to 95.59 yen, with the Japanese currency helped by short covering after a decline of 10 percent this year.
Japan's parliament approved Prime Minister Shinzo Abe's nominee for central bank governor, Haruhiko Kuroda, and nominees for the two deputy governor posts, clearing the way for the radical monetary easing.
Kuroda's pledge to "act with speed" and do whatever it takes to hit the BOJ's new inflation target has some investors speculating he may summon a meeting even before the next scheduled policy review on April 3-4.
Sterling rose 0.4 percent to $1.5137. BoE chief Mervyn King said its decline had gone far enough, although traders did not expect the pound's rise to last long given concerns about the UK economy and speculation of more monetary easing.