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Dollar revived by U.S. data tonic, North Korea respite

By Wayne Cole

By Wayne Cole

SYDNEY (Reuters) - The dollar hoarded hefty gains on Wednesday after strong U.S. retail data put a Federal Reserve rate hike back on the agenda, while Asia stocks inched ahead as tensions in the Korean peninsula simmered down a little.

North Korean leader Kim Jong Un has delayed a decision on firing missiles towards Guam while he waits to see what the United States does, as Washington said any dialogue was up to Kim.

The break in threat and counter-threat was enough for South Korean stocks <.KS11> to bounce 0.5 percent, though they remain well short of a record peak touched last month.

The next flash point could be a joint U.S.-South Korean military exercise starting on Aug. 21.

MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> edged up 0.1 percent while Japan's Nikkei <.N225> dithered either side of flat.

There was no clear lead from Wall Street, where the Dow <.DJI> had ended on Tuesday up a tiny 0.02 percent. The S&P 500 <.SPX> lost 0.05 percent and the Nasdaq <.IXIC> 0.11 percent.[.N]

The economic news, however, was much more emphatic, with U.S. retail sales rising the most in seven months in July as consumers spent more on 10 of 13 retail sectors.

Importantly, upward revisions to sales for both May and June countered concerns that consumption had entered a downtrend and lifted the outlook for economic growth.

Investors reacted by narrowing odds on the Fed tightening again this year and sent two-year Treasury yields <US2YT=RR> up to 1.36 percent, from 1.29 percent on Friday.

"The early Q3 data has served as a reminder that the U.S. expansion is robust," said ANZ economist Daniel Gradwell.

"The majority of the Fed are of the view that as long as that remains the case, underlying inflation pressures will gradually intensify and policy normalization is appropriate."

BITCOIN BONANZA

The dollar duly rallied to its highest level against a basket of major currencies in nearly three weeks and was last holding at 93.849 <.DXY>.

The euro <EUR=> dipped to $1.1736, though it had found solid support around $l.1686 overnight.

The yen took an added blow from the easing in risk aversion and sagged to 110.64 per dollar <JPY=>. The dollar's 1.4 percent jump on Tuesday was the biggest daily rise since April.

Sterling also slumped after UK inflation numbers came in below forecast, breaching key support levels against both the euro and dollar. The pound was last at $1.2863 <GBP=>, having shed 1.1 percent the previous session.

All that action paled in comparison to the digital currency Bitcoin, which has surged over $1,200 so far this month to reach $4,100 <BTC=BTSP> amid fevered speculative demand.

"Interest in digital currencies has spiked recently as proponents tout benefits such as a lack of centralized control and limited supply," said William O'Loughlin, an investment analyst at Rivkin Securities.

"However, anyone thinking of buying the currency should realize that it is incredibly volatile and could fall in value as quickly as it rose."

In commodity markets, the revival in risk appetite dragged gold back to $1,272.80 an ounce <XAU=>, and away from Friday's two-month top of $1,291.86.

Oil prices nudged higher after data from the American Petroleum Institute showed a much larger fall in crude inventories than expected. [O/R]

U.S. crude <CLc1> added 18 cents to $47.73 per barrel, while Brent <LCOc1> firmed 24 cents to $51.04.

(Editing by Shri Navaratnam and Kim Coghill)