* Euro back above $1.17, highest since August
* Weaker U.S. inflation weighs on dollar
* Emerging market rally fires up broader markets
* Graphic: World FX rates in 2018
(Adds details, updates prices, quotes)
By Tommy Wilkes
LONDON, Sept 14 (Reuters) - The euro rose to a two-week high on
Friday after weaker-than-expected U.S. inflation data continued to
weigh on the dollar and a broader recovery in investment sentiment
supported the single currency.
The Turkish central bank's decision on Thursday to hike interest
rates sharply sparked a recovery across emerging market assets, and
hopes of a new round of trade talks to reduce tensions between United
States and China buoyed broader market sentiment into Friday.
"The market is focused on whether the improvement in
sentiment and the recovery in emerging markets will continue,"
said Esther Reichelt, an analyst at Commerzbank in Frankfurt.
The euro rose 0.2 percent to as high as $1.1721 , its highest
since Aug. 28.
The European Central Bank kept policy unchanged as expected on
Thursday, staying on track to end its bond purchases this year and
raise interest rates next autumn. The policy meeting's impact on the
euro was minimal.
Weaker U.S. inflation data published on Thursday continued to hurt
the dollar, and the greenback index dropped slightly to 94.483. The
U.S. currency is on track for its fourth-biggest weekly drop in 2018.
Emerging market currencies held onto gains after a big rise on
Thursday, as investors welcomed Turkey's central bank's move to hike
policy rates to 24 percent to restore confidence in the lira.
The lira - down more than a third in 2018 - was flat against the
dollar at 6.064 after ending the previous day on a gain of more
than 4 percent.
South Africa's rand and Russia's rouble , which both suffered
heavily in recent months as investors panicked about a deepening
selloff across emerging markets, weakened slightly on Friday but
retained most of their gains.
China's offshore yuan slipped 0.1 percent to 6.8475 .
Data on Friday showed China's investment growth for August fell to
a new record low, while industrial output and retail sales for the
month rose by more than expected.
Chinese officials welcomed an invitation from Treasury Secretary
Steven Mnuchin for new talks to resolve the Sino-U.S. trade conflict,
although U.S. President Donald Trump tempered market expectations.
Investors have taken fright at what 2018's rallying dollar will
mean for global financing costs, and so this week's drop in the
greenback helped lift the mood among investors.
Currencies hit hard recently capitalised on the better sentiment.
The Australian dollar , seen as a barometer of risk sentiment,
is on track for its second biggest weekly rise in 2018, as is the
Norwegian crown .
The euro is also headed for its second strongest week in 2018
versus the safe-haven Swiss franc , up 0.8 percent since Monday.
The Australian dollar rose 0.1 percent to above $0.72, pulling
further away from a 2-1/2-year low of $0.7085 plumbed on Tuesday.
Adam Cole, chief currency strategist at RBC, said "our bias
is to look for opportunities to use recent Australian dollar weakness
to play the topside."
The yen rose 0.1 percent to 111.79 versus the dollar.
(Editing by Toby Chopra)