* Euro falls against dollar, ending three-day rally
* Japan's PM warns on public debt, default risks
* Sterling tumbles after weak industrial output data
* U.S. retail sales fall but consumer sentiment improves (Adds details, updates prices.)
By Steven C. Johnson and Vivianne Rodrigues
NEW YORK, June 11 (Reuters) - The dollar rose against the yen and euro on Friday as data showing improvement in U.S. consumer sentiment suggested the U.S. economic recovery remains on track.
Lingering worries about euro zone debt and technical barriers also contributed to the euro's decline, ending a three-day winning streak that drove it as high as $1.2152.
Data showing U.S. consumer sentiment near a 2-1/2-year high was "quite a pleasant surprise," particularly given the recent backdrop of market volatility and stock market weakness, said RBS Securities strategist Alan Ruskin.
The rise in consumer sentiment offset an unexpected 1.2 percent slide in U.S. retail sales last month and left markets more confident that U.S. interest rates would rise before those in Europe or Japan. For details, see [ID:nN11114277]
In late afternoon trading in New York, the dollar was up 0.3 percent at 91.67 yen JPY=. A warning from Japan's new prime minister that the country could risk default if it neglects growing public debt and loses the market's trust added to yen losses. [ID:nTKF106969].
The euro fell 0.2 percent to $1.2087 EUR=, its first daily decline since Monday, when it hit $1.1876, its lowest level since 2006. The euro edged up to 110.86 yen EURJPY=.
The single currency was still poised to end the week up around 1 percent against the dollar after rallying for most of this week. Despite the gain this week, the euro is down nearly 16 percent on the year.
Traders said the market remains wary of euro zone debt and the risks it poses to the banking sector.
On Friday, the euro's rally stalled after running into technical resistance around $1.2150, traders said. According to Reuters data, a next major resistance level on the euro is set at $1.2917.
"That was the level at which the euro broke down (in early June), so we've closed the gap, a technically normal move that doesn't indicate a change in the bigger picture, which is dominated by negative euro sentiment," said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey.
Other traders said a successful auction of Italian government bonds had helped bolster the euro earlier following strong demand at a Spanish auction on Thursday.
MIXED DATA, NEXT WEEK
Sterling fell 1.2 percent to $1.4528 GBP=D4 after an unexpected fall in British industrial production while the dollar rose 0.6 percent to 1.1499 Swiss francs CHF=.
The mixed U.S. data on Friday sparked some concern about U.S. consumer spending -- which typically accounts for about two-thirds of the country's economic activity -- and analysts at Tempus Consulting in Washington said the dollar probably needs more evidence of housing and labor market strength before it can add much to recent gains.
"Obviously, the numbers have disappointed some, but we kind of expected retail sales to be down as consumers boosted their own savings, and that correlated also to a fall in the stock market," said John Doyle, foreign exchange strategist at Tempus. "I suspect the dollar will continue to be range-bound against most of its trading partners."
U.S. growth is still considered likely to outpace Europe's. While German Chancellor Angela Merkel said Friday a stable euro had helped the euro zone weather its debt crisis, she said Germany's economy would not likely match its 2008 growth levels until 2012 or 2013. [ID:nBAT005555]
Some key events next week may include the policy meetings by the Swiss National Bank and the Bank of Japan. [ID:nN11115177]
Analysts at UBS AG said markets will be looking into whether SNB intervention is going to continue, and in the case of Japan, whether the bank will provide any additional schemes to improve credit provision, especially with the new government in place.
In the United States, next week's data highlights include readings on industrial production and consumer prices. (Additional reporting by Wanfeng Zhou in New York; Editing by Leslie Adler)