* Dollar extends gains on upbeat U.S. data, stress test
* Strong data seen dimming chances of further Fed stimulus
* Higher Treasury yields also shoring up greenback
* Tokyo exporters in no rush to sell USD/JPY
By Antoni Slodkowski
TOKYO, March 14 (Reuters) - The dollar hit an 11-month high against the yen on Wednesday, building on its broad gains after a modest brightening of the Federal Reserve's economic forecasts nudged traders to downplay expectations of further monetary easing.
U.S. 10-year Treasury yields hovered near a 3-1/2-month high hit after solid retail sales data, making the dollar less attractive as a funding currency for carry trades. Tokyo exporters were also reluctant to sell it now, expecting more strength, traders said.
These factors saw the dollar hit a session high at 83.22 yen , its highest level since April 2011, before steadying around 25 pips above late New York levels at 83.14.
"The move in the yields was essential for the dollar rally to continue," said Sumino Kamei, senior currency analyst at the Bank of Tokyo-Mitsubishi UFJ in Tokyo.
Recent easing steps by the Bank of Japan, the country's trading deficit amid surging demand for fossil fuels in the wake of the nuclear crisis have also helped the dollar rise a staggering 9 percent on the yen since the beginning of February.
"We are getting to a point where people will be looking for a trigger to take profits on this rise. There aren't many scheduled events that could prop it further, while risks -- most notably elevated oil prices -- loom large."
Traders said that a pullback in the dollar would be limited to the mid-82 area with the previous high of 82.65 lending support.
The U.S. currency gained against all major currencies, with its index just a tad below the 7-week high of 80.32.
Hot on the heels of Friday's encouraging U.S. jobs report, a strong 1.1 percent rise in retail sales provided fresh evidence of improvement in the world's largest economy.
Acknowledging this trend, the Fed slightly upgraded its outlook, expecting "moderate" growth over coming quarters and a gradual decline in the unemployment rate, although it said the jobless rate "remains elevated."
"There is nothing for risky assets not to love about the Fed stance; either the economic outlook will continue to improve, or the Fed will take action to inject more liquidity into markets," said Julia Coronado, BNP Paribas chief economist for North America.
Providing further comfort to the bulls, the Fed's annual stress test showed the majority of the largest U.S. banks passed, bolstering strong gains across global bourses.
The S&P 500 index closed at highs not seen since June 2008. The inverse relationship between the dollar and equity markets has all but broken down and analysts expect this can persist.
"A more upbeat Fed coupled with a continuation of strong economic data out of the United States could lead to an occurrence rarely seen in recent years: a rally by equity markets and the U.S. dollar simultaneously over the next few weeks," said Christopher Vecchio, currency analyst at DailyFX.
In the past, investors tended to sell the dollar to buy higher-yielding assets on any upside surprise in key U.S. data. Now, strong numbers are seen as lengthening the odds of more action from the Fed, which is positive for the dollar.
In Europe, Germany's ZEW economic think tank's monthly sentiment survey jumped in March to its highest level since June 2010, confirming hopes that Europe's largest economy has recovered from a weak patch.
But with the dollar on the front foot, the euro fell some 10 pips to $1.3070, with support seen at $1.3054, the 50 percent retracement of the Jan 16-Feb 24 rally.
The single currency is seen capped at $1.3120-30, where sell orders were said to be lurking. Commodity currencies like the Australian dollar also struggled against the U.S. currency even as other risk assets rallied.
The Aussie, which rose against the euro and the yen overnight, found the going much tougher against the U.S. unit. It was down 0.2 percent at $1.0525, still some distance away from a seven-week trough of $1.0473 plumbed on Monday.
In Europe, euro zone industrial production for January and inflation data for February are due later in the day.