* Dollar extends gains on upbeat U.S. data, FOMC * Higher Treasury yields also shoring up greenback * EUR/USD at 1-mth low as stop losses triggered By Neal Armstrong LONDON, March 14 (Reuters) - The dollar hit an 11-month high against the yen and 1-month high versus the euro on Wednesday, with more gains foreseen after a modest upgrade of the Federal Reserve's economic forecasts and firmer U.S. data lessened the greenback's status as a funding currency. U.S. 2-year Treasury yields hit a 7-1/2-month high after solid retail sales data, making the dollar less attractive to fund investments in higher-yielding assets. Tokyo exporters were also reluctant to sell it now, expecting more strength, traders said. These factors saw the dollar hit a high of 83.41 yen in European trade, its highest level since mid-April to trade up around 0.7 percent for the day. Traders said key resistance was last year's high of 85.53 yen. Recent easing steps by the Bank of Japan and the country's trading deficit amid surging demand for fossil fuels in the wake of the nuclear crisis have also helped the dollar, which has risen 9 percent to the yen since the beginning of February. "We have revised our dollar/yen forecast up to 90 in six months and think it will stay there until twelve months from now," said Raghav Subbarao, currency strategist at Barclays Capital. Barclays' previous forecasts were for dollar/yen to be at 82 in six months and 84 in a year. The U.S. unit gained also against all other currencies, with its index hitting its highest in nearly eight weeks of 80.435 . 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 an upturn 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 remained elevated. "The arguments in favour of a switch in funding currency from the USD to the EUR and JPY continue to build, and some such shift appears to be taking place, even if it is gradual and only at the margins driven by additional risk-taking," said BNP Paribas in a note. THE 'INVERSE RELATIONSHIP' Further boosting sentiment, the Fed's annual stress tests showed the majority of the largest U.S. banks passed, bolstering strong gains on most stock exchanges. The traditional inverse relationship between the dollar and equity markets has all but broken down and analysts expect this can persist. "A part of the explanation is the very low starting point of expectations in early 2012 for U.S. growth and forward rates," said Jens Nordvig, global head of foreign exchange strategy at Nomura Securities. "Another part of the explanation is that the ECB's LTRO (long-term funding) operations have changed EUR/USD trading dynamics. In a way, the euro is the new dollar, with potential to become the favorite funding currency in global capital markets," he said. The euro fell to a one-month low of $1.30308 on EBS, triggering stop losses below support at $1.3054, the 50 percent retracement of a Jan 16-Feb 24 rally. It later recovered a touch to $1.3052, down 0.2 percent for the day. Euro zone industrial production for January and inflation data for February were due for release at 1000 GMT. Further support for the euro looms at the next major trough on daily charts at the Feb. 16 low of $1.2974, and the 61.8 percent retracement of the January to February rally at $1.2954. The Australian dollar also fell against its U.S. counterpart. It was down 0.5 percent at $1.0500, inching closer to a seven-week trough of $1.0473 plumbed on Monday.