By Dion Rabouin

NEW YORK (Reuters) - The dollar rose against the yen on Thursday, spurred by a jump in oil prices that put upward pressure on U.S. inflation expectations and pushed traders to increase their outlook on a rate hike from the Federal Reserve.

Oil prices surged more than 4 percent on Thursday after U.S. inventory data showed crude stocks dropped by the most since January 1999, as imports fell due to Tropical Storm Hermine last week. [EIA/S]

The dollar rose 0.75 percent against the yen <.JPY> to 102.54. The currency pair is generally considered the most vulnerable to rising U.S. interest rates and inflation expectations.

The dollar had fallen as low as 101.42 yen in early trading as expectations the Bank of Japan would expand its monetary stimulus this month faded after a Bank of Japan deputy governor gave few fresh clues on the bank's thinking.

"The reason that it’s turned around is the market stepped back and said, 'Hold on. If oil jumps, inflation looks a lot more scary and the Fed is more likely to hike," said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets.

Fed fund futures prices showed tradersnow see a 57 percent chance of at least one interest rate increase from the Fed by December, up from just under 47 percent on Wednesday.

The euro hit a nearly two-week high against the dollar after the European Central Bank left interest rates unchanged and stopped short of a formal commitment to further expand its asset-purchase program, which ECB head Mario Draghi said had not even been discussed.

Draghi unveiled a modest downgrade to the ECB's euro zone growth forecasts and warned of downside risks, including uncertainty relating to Britain's decision to exit the European Union. However, he said no action was required for now.

The euro rose to a session high of $1.1326 <EUR=> against the dollar during Draghi's speech, its strongest since Aug. 26. It pared gains following the oil inventory data and was last up 0.2 percent at $1.1260.

The advance by the euro was due largely to dashed expectations of an extension of the ECB's stimulus program.

The dollar index <.DXY>, which tracks the greenback against six major world currencies, erased earlier losses to turn positive and was last up 0.1 percent. During Draghi's remarks, it fell to its lowest since Aug. 26.

(Editing by Bernadette Baum and David Gregorio)