NEW YORK, Dec 16: The dollar extended its modest rally on Friday as investors shook off a tame inflation report, focusing instead on data showing strong capital inflows and improving industrial output.

The euro dropped to $1.3081 at 22200 GMT, the lowest point since November 24, from $1.3142 late on Thursday in New York.

The dollar edged up to 118.13 yen from 117.80 yen late on Thursday.

It had earlier hit 118.34 yen -- the highest point since November 21.

The dollar fell briefly on weak US inflation data, but better-than-expected US portfolio flows figures released later helped it erase much of those losses.

The US Treasury reported net foreign purchases of long-term securities were $82.3 billion in November, better than expected. A separate report showed US industrial production up 0.2 per cent.

Analysts also pointed to talk of central bank buying of dollars at certain levels, but thin volumes as the pre-Christmas period gets into full swing are also causing exaggerated movements.

The overall theme is one of consolidation at the moment. But it will be a choppy ride with some big moves either side from now until after Christmas, said Standard Chartered currency analyst Marios Maratheftis.

Data released Friday showed both US headline and core retail inflation were unchanged in November, against expectations for a 0.2 per cent rise in both.

Following some recent strong data out of the United States, particularly last week's better-than-expected jobs figures, however, the benign inflation data were unlikely to prompt the US Federal Reserve to start cutting interest rates early next year, analysts reckoned.

The news that both headline and core consumer prices were unchanged in November would seem to support the Fed's belief that inflation would moderate without the need for more rate hikes, said Paul Ashworth at Capital Economics.

However, with conditions in the labour market still looking tight we doubt that the Fed will be willing to drop its tightening bias any time soon, let alone countenance a rate cut, he said.

The yen remained weak against the dollar, though it came off earlier lows when it reached its lowest level in nearly a month of 118.34 per dollar.

The Japanese currency was unable to benefit from a better-than-expected key Japanese Tankan survey as market players concluded that it was not sufficient to allow the Bank of Japan to raise interest rates in December.—AFP