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* Yen retreats a touch, still on track for best week in a month
* Dollar index heads for biggest weekly fall in seven months
By Gertrude Chavez-Dreyfuss
NEW YORK, April 11 (Reuters) - The safe-haven U.S. dollar rose on Friday, benefiting from a sell-off in equities around the world, as investors fretted about what seemed like overstretched valuations.
Global equities fell to two-week lows, triggered by selling on Wall Street on Thursday. That spurred a broad risk-averse environment that led to sell-offs in higher-yielding and emerging market currencies.
“Bad news for the world is good news for the dollar,” said Steven Englander, managing director and global head of G10 FX strategy, at CitiFX in New York. “Once fears about the equity market intensified, they picked up a more conventional type of mode to buy the dollar.”
Not that the dollar has been the belle of the ball this year. In fact, the U.S. currency has so far lost 0.6 percent against a basket of currencies in 2014, despite a reduction in asset purchases by the Federal Reserve, a supposedly dollar-positive event.
The greenback has also lost 2.5 percent against the yen since last Friday, weighed down by guidance from Federal Reserve officials that the U.S. central bank is nowhere near as close to raising base interest rates as markets had begun to believe.
That comes after two weeks of robust gains against the yen, and the clearest signal yet that European policymakers are on the verge of starting to print billions in extra euros, all of which had encouraged many to believe the dollar was ready to break out higher. That has yet to materialize though on a sustained basis.
And for many, the dollar’s gains on Friday could be temporary.
In New York trading, the dollar index was up 0.1 percent at 79.470, but on the week, it was down 1.2 percent, its worst weekly showing in nearly seven months.
The dollar was flat against the yen at 101.52 yen.
It trimmed losses a little bit after stronger-than-expected U.S. producer prices data.
U.S. producer prices recorded their largest increase in nine months in March as the cost of food and services surged, pointing to some pockets of inflation at the factory gate. The seasonally adjusted producer price index for final demand increased 0.5 percent last month after slipping 0.1 percent in February.
The dollar was flat against the euro at $1.3879.
The argument at the start of this year was that a recovering U.S. economy and the steady tightening of monetary conditions that would result, while Japan and Europe lag, would see the dollar gain.
Those backing that trade have been shaken out more than once already, however, leaving the market stuck in tight ranges since a burst of activity around an emerging sell-off in January.
Against emerging market currencies, however, the dollar was higher. The dollar was up more than 1 percent against the South African rand at 10.4950 rand.
The greenback was also higher against the Mexican peso , the most liquid emerging market currency, trading at 13.0953 to the dollar, up 0.3 percent. (Additional reporting by Patrick Graham in London; Editing by James Dalgleish)