The dollar strengthened to a one- week high against the euro Thursday as U.S. retail sales advanced in May more than economists forecast, raising speculation the Federal Reserve will increase borrowing costs this year. U.S. retail sales increased 1 percent in May as Americans used their tax rebates to shop, the Commerce Department reported. That followed a revised 0.4 percent advance the prior month. The median forecast of 82 surveyed economists was for a 0.5 percent increase.
Traders bet Fed policy makers are more likely to raise borrowing costs in August. Fed funds futures on the Chicago Board of Trade show a 60 percent probability the central bank will increase the target lending rate by at least a quarter- percentage point, compared with a 7 percent chance a week ago.
The U.S. currency was supported by speculation that finance ministers from the Group of Eight countries might make comments discouraging the currency's decline at two days of meetings in Osaka, Japan, this weekend. G-8 officials will urge emerging nations to stop subsidizing oil consumption and press regulators, notably in the U.S., to look into the trading that has driven crude oil to a record, said French Finance Minister Christine Lagarde.

EUR/USD fell from $1.5560 to $1.5380. Later rebound followed till $1.5450.
GBP/USD sunk from $1.9635 to $1.9435 rebounding further to $1.9470.
USD/JPY rose from Y106.80 to Y108.06.

European data for Friday starts at 0600GMT with the final May CPI and HICP data from Germany where both are expected to come in at 0.6% m/m, 3.0% y/y. Eurozone data at 0900GMT sees Q1 employment data and Q1 labor costs,which are seen rising 2.9%.

US data starts at 1230GMT, when CPI is expected to rise 0.5% in May, as energy prices are expected rebound after the seasonally adjusted decline in the previous month. Food prices are forecast to be more modest in the month after posting the largest monthly gain in 18 years. Core CPI is forecast to rise 0.2% in the month after the very tame 0.1% reading in April.
US data concludes at 1355GMT when the Reuters/University of Michigan Consumer Sentiment Index is expected to rise very modestly to 60.0 in early-June.

closing
Nikkei -294.88 -2.1% 13,888.60
Topix -26.89 -1.9% 1,363.14
FTSE +67.20 +1.17% 5,790.50
DAX +64.26 +0.97% 6,714.52
CAC +11.39 +0.24% 4,672.30
Dow -205.99 -1.68% 12,083.77
NASDAQ -54.93 -2.24% 2,394.01
S&P -22.95 -1.69% 1,335.49
10yr Note -0.2600 -0.063% 4.073%
NYMEX Crude Oil +5.07 +3.86% 136.38
Gold +11.70 +1.34% 882.90

Japan stock indexes fell the most in three months, led by financial companies and commodity producers, on concern surging inflation and credit turmoil will derail growth.
Mitsui O.S.K. fell 4.8%. Nippon Yusen K.K., Japan's largest shipping line, lost 4.6%.
JFE Holdings Inc shares fell 6,7% after PBOC increased interest rate spurring expectations demand from China may lower.
Japan Tobacco Inc, fell 5,3% on talks of higher taxes for tobacco industry.
Kyocera Corp rose 2.9% after JPMorgan Chase and Co. upgraded shares to «overweight».

European stocks rose for the first time in seven days after InBev NV offered a record $46.3 billion in cash for Anheuser-Busch Cos. and banks rebounded from their cheapest in two months. InBev rallied the most in three months after saying it has ``strong support'' from lenders to finance the bid. Premiere AG, Germany's biggest pay-television company, and Banco Popular Espanol SA climbed on speculation they were takeover targets. Commerzbank AG rebounded from its lowest close since March, while HBOS Plc rallied after its steepest one-day drop in three months. Vedanta Resources Plc led a recovery in mining companies after Goldman Sachs Group Inc. recommended the stock.
Vedanta advanced the most in three weeks after Goldman upgraded the shares to ``buy'' from ``neutral,'' saying the recent decline in the share price provides ``an opportunity for investors.'' Royal Bank of Scotland Plc, the second biggest U.K. bank, led the industry higher as a measure for European banks showed the stocks closed yesterday at their cheapest since April.
BASF AG, the world's largest chemical company, climbed after Societe Generale SA lifted its recommendation on the shares. Siemens AG rose the most in almost a month after Chief Executive Officer Peter Loescher said the company is ``on a good way'' to reach its earnings targets. Commerzbank surged 1.19%. Allianz added 1.5%. Germany's second-largest bank and Dresdner Bank are inspecting each others' books in preparation for possible merger talks, Handelsblatt said, citing unidentified people from the industry. Siemens, Europe's largest engineering company, climbed 2.5%, the biggest increase since April 30.Infineon Technologies AG, Europe's second-largest maker of semiconductors, jumped 5.5%. Elpida Memory Inc. would consider taking a stake or a complete acquisition of Infineon's memory-chip unit Qimonda AG, Frankfurter Allgemeine Zeitung reported.

US stock indexes climbed as retail sales increased more than forecast and banks rose from a five-year low, outweighing speculation the Federal Reserve will boost interest rates as bond yields climbed the most since April. The government reported increases to retail sales as well as weekly jobless claims. Retail sales increased 1% in May, compared to an expected increase of 0.5% from analyst expectations. Retail sales, excluding automobiles and gas, rose 1.2% in May, compared to expectations of a 0.7% increase.
Wal-Mart Stores Inc. advanced after tax rebate checks pushed retail sales in May to twice the rate economists estimated. Goldman Sachs Group Inc., JPMorgan Chase & Co. and Citigroup Inc. gained after Morgan Stanley advised investors to buy financial companies.
Corporate news: Battered mortgage lender Thornburg Mortgage (TMA) swung to a first-quarter loss of $3.31 billion. The company blamed the loss on delinquent loans.
Citigroup said it plans to close down its hedge fund Old Lane Partners. Citi paid more than $800 million last year for the fund that was co-founded by CEO Vikram Pandit.
Starbucks said it entered a deal with European beverage vender SSP to open more than 150 Starbucks stores in Europe

The troubled financial firm Lehman Brothers said it was replacing two top executives, including its chief financial officer, just days after announcing a massive $2.8 billion quarterly loss. Lehman stock fell about 5%.