* Soft euro zone inflation data pressures euro
* ECB's Coeure says too early to review policy stance
* S. African rand slumps as fin min replaced
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Jemima Kelly
LONDON, March 31 (Reuters) - The euro hit a two-week low on Friday after data showed inflation in the currency bloc slowed by far more than expected in March, giving the European Central Bank room to scale back monetary stimulus only gradually.
The single currency has fallen over 1 percent against the dollar - its worst showing in seven weeks - since Monday, as investors have revised their expectations for when the ECB will begin to normalise monetary policy.
That repricing has been driven by a series of comments from ECB rate-setters and sources at the central bank, who suggested policymakers are wary of making any new changes to their message after small tweaks upset investors and raised the spectre of surging borrowing costs for the bloc's indebted periphery.
ECB board member Benoit Coeure said on Friday it would be "legitimate" for the central bank to review its current stance that rates will stay at record low levels or may even be cut, but it was too early for now to have that conversation.
"It's important to note that they are actually talking about normalisation, so it is moving in the right direction. But as they also emphasise, they want to be slow and gradualist about that, and the inflation data supports that," said Societe Generale currency strategist Alvin Tan, in London.
The euro edged down another 0.1 percent to $1.0670, its lowest since March 15, after data showed inflation at 1.5 percent year-on-year, down from a four-year high of 2 percent in February and lagging forecasts in a Reuters poll of a 1.8 percent rise in consumer prices.
Analysts said the reaction to the data was muted because German and Spanish inflation data on Thursday had already come in well below forecasts, which had meant investors were expecting a lower number on Friday.
"The combination of inflation disappointments as well as a consistent press of ECB rhetoric on market pricing has shifted people out of this very short term but long euro view," said Citi's head of FX strategy in London, Richard Cochinos.
"We also have the French elections at the end of the month (of April), so I think it's going to be difficult for the market to go and buy a bunch of euros until we get through that."
The dollar, which has benefited from the euro's weakness this week as well as solid U.S. economic data, climbed 0.2 percent against a basket of currencies to 100.55.
Over the quarter, though, the greenback has fallen 1.7 percent, its worst showing in a year, on doubts that U.S. President Donald Trump was not prioritising - and did not have the necessary power - to push through Congress the economic reforms that had driven the dollar to 14-year highs at the start of the year.
The dollar rallied as much as 2.3 percent against South Africa's rand to 13.470, its highest since early February, after President Jacob Zuma sacked finance minister Pravin Gordhan in a cabinet reshuffle following days of speculation that has rocked the country's markets and currency.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets (Reporting by Jemima Kelly; Editing by Keith Weir)