FOREX-Dollar bolstered by U.S. rate, economic outlook

(Recasts, adds quotes, updates prices, changes byline, dateline; previous LONDON)

* Dollar recovers from lows vs yen

* Sterling falls after British inflation drops

By Gertrude Chavez-Dreyfuss

NEW YORK, Jan 13 (Reuters) – The dollar gained on Tuesday, still benefiting from more upbeat U.S. economic prospects compared with the rest of the world that should keep the Federal Reserve on track to raise interest rates this year.

The greenback has risen in seven of the last eight sessions against a currency basket and is on track for a fourth straight week of gains.

Some investors, however, have started to question the wisdom of raising rates at all given a global drop in inflation partly caused by the near 60 percent slide in oil prices since June. On Tuesday, crude oil prices fell to near six-year lows.

Data last Friday on U.S. December payrolls, in addition, showed an unexpected drop in wage inflation, which to many suggested the Fed could take its time lifting interest rates.

“In any case, the dollar remains a better investment than most other major currencies, at least for now,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, D.C.

The dollar index rose 0.4 percent to 92.302 and for the month of January to date was up 2.3 percent.

The euro, meanwhile, traded toward a nine-year low against the dollar, down 0.5 percent at $ 1.1776. It was dragged down by expectations the European Central Bank will launch a full-fledged government bond-buying program soon.

Data from Greece showed its economy was mired in deflation while engineering orders in Germany fell 10 percent year-on-year in November.

Deutsche Bank, in a research note on Tuesday, revised downward its forecast on the euro. The bank now sees the euro zone’s shared currency falling to $ 1.10, $ 1.00, and $ 0.90 by the end of 2015, 2016, and 2017 respectively.

Against the yen, the dollar rose 0.2 percent to 118.50 yen , recovering from 117.75, its lowest since Dec. 17, hit earlier Tuesday. The dollar in the last few sessions had also been weighed down by lower U.S. Treasury yields.

Sterling, on the other hand, fell towards an 18-month low after data showed British inflation at its lowest since 2000. That bolstered expectations the Bank of England will keep rates low for longer.

Sterling slid to $ 1.5077, not far from an 18-month low of $ 1.5034 struck last week, after data showed UK inflation fell to an annual 0.5 percent in December from 1 percent in November. Economists had expected inflation to fall to 0.7 percent.

The pound was last down 0.1 percent at $ 1.5167.

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Anirban Nag in London; Editing by James Dalgleish)