* U.S. retail sales unexpectedly flat
* Sterling falls on BOE Inflation Report, wages data
* Yen subdued after Japan Q2 GDP contraction (Recasts, adds analyst comment, updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, Aug 13 (Reuters) - The dollar rose to one-week highs against the yen and inched higher versus the euro on Wednesday, getting support from gains on Wall Street after a relatively quiet day on the geopolitical front.
The greenback tumbled earlier following unexpectedly flat U.S. retail sales in July that suggested the Federal Reserve was in no rush to raise interest rates any time soon. The dollar fell to one-week lows versus a struggling euro after the retail sales report.
But the dollar soon recovered after that in generally thin trading as Wall Street shares closed higher. And for some, a soft U.S. retail sales figure did not necessarily doom the U.S. currency.
Data on Wednesday showed retail sales, which had increased 0.2 percent in June, were held back by a second straight month of declines in receipts at auto dealers, as well as weak sales of furniture and electronics and appliances.
July’s reading was the weakest since January. Economists polled by Reuters had forecast retail sales increasing 0.2 percent last month.
“I would expect to see the impact of the retail sales number to be short-lived and we would see some improvement next month, which will show that the U.S. economy is strengthening overall,” said Lennon Sweeting, corporate FX dealer at U.S. Forex in San Francisco.
“I am still bullish on the dollar. Among the major currencies, the U.S. dollar has the most room to rally at the moment.”
The dollar rose to a peak of 102.54 yen, a one-week high. It last traded at 102.42, up 0.2 percent.
The yen was also hurt by Wednesday’s data showing Japan’s economy shrank an annualized 6.8 percent in the second quarter, its biggest contraction since the March 2011 earthquake and tsunami, as a sales tax hike took a heavy toll on household spending.
The annualized contraction in gross domestic product was slightly less than forecasts for a 7.1 percent drop. But it will keep pressure on policymakers to ease policy in coming months.
The euro rose as high as $1.3415 against the dollar following the retail sales number. That was the highest level in a week. But it was last flat at $1.3364.
Earlier, the euro was held back by euro zone data that showed factory output fell 0.3 percent in June after a 1.1 percent drop in May.
Sterling, meanwhile, fell after a Bank of England report forecast subdued growth in wages in coming months, leading markets to push back until early next year expectations of higher interest rates.
The British pound fell to a four-week low below $1.67 , far from its July peak of $1.7192 which was its highest level since late 2008. Sterling was last down 0.7 percent at $1.6689. (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Anirban Nag in London; Editing by Meredith Mazzilli and Lisa Shumaker)