* Tumbling Treasuries yields wipe out dollar's initial gains
* Wall Street losses, risk aversion also hurt greenback
* Euro hits 11-week lows versus dollar, yen earlier
* Euro zone growth misses forecasts, inflation subdued (Updates market action, adds quote)
By Richard Leong
NEW YORK, May 15 (Reuters) - The dollar fell on Thursday with declining U.S. yields on some downbeat economic news, while the euro tumbled to 11-week lows against the yen and greenback.
The fall in the euro was due to muted euro zone growth and inflation data that supported bets the European Central Bank will ease monetary policy at its meeting in June.
Benchmark Treasuries yields fell below 2.50 percent to their lowest levels since October in the wake of news that U.S. factory output fell at its steepest rate in over 1-1/2 years in April and a surprise drop in a gauge of U.S. home builder sentiment. These reports overshadowed encouraging data on regional factory and jobless claims.
"Yields just collapsed around that time and the dollar is basically reacting to that," said Shaun Osborne, chief foreign exchange strategist at TD Securities in Toronto.
A sell-off in Wall Street stocks also hurt the dollar. The Standard & Poor's 500 index shed 1 percent.
Benchmark 10-year Treasuries yields were last down 4 basis points on the day to 2.502 percent.
The dollar was 0.33 percent weaker against the yen at 101.53 yen after hitting a session low of 101.30 yen, which was its lowest in two months.
The greenback gave up its earlier gain against the euro. It reached its strongest versus the shared currency since Feb. 27 earlier. It was little changed versus the euro at $1.3715 but has come back from a 2-1/2 year low of $1.3995 last week.
The euro remained in negative territory against the yen in late New York trading. It was last down 0.34 percent at 139.19 yen after touching 139.02 yen, its lowest in 11 weeks.
The euro rose to a six-week high against the Swiss franc on speculation the Swiss National Bank might lift the floor on the euro/Swiss franc pair to 1.25 francs or perhaps even 1.30 in response to expected policy from the ECB. The SNB did not comment.
The euro zone economy expanded only 0.2 percent in the first quarter rather than the 0.4 percent expected by economists, the EU's statistics office estimated.
Reuters on Wednesday quoted sources as saying the ECB is preparing a package of policy options for its June meeting. They include cuts in all its interest rates, plus measures aimed at boosting lending to small and mid-sized firms.
ECB Executive Board member Yves Mersch said on Thursday that the central bank's toolbox included a negative rate on bank deposits and other measures.
Additional reporting by Anirban Nag in London; Shinichi Saoshiro in Tokyo; Editing by Larry King, John Stonestreet, Chizu Nomiyama and Lisa Shumaker