* Dollar on back foot after lacklustre US retail sales data
* Lower Treasury yields seen weighing on greenback
* Market shows little reaction to weak Q2 Japan GDP (Adds details, quotes)
By Shinichi Saoshiro
TOKYO, Aug 15 (Reuters) - The dollar was on the defensive on Monday, pressured by downbeat U.S. data that tempered expectations of a near-term interest rate hike by the Federal Reserve.
The greenback was little changed at 101.340 yen after losing 0.6 percent on Friday, when the U.S. indicators were released. The euro was steady at $1.1156 after edging up 0.2 percent on Friday.
The dollar index was effectively unchanged at 95.767 after going to as low as 95.254 on Friday, its lowest since August 3.
The dollar came under pressure after Treasury yields slid sharply in response to weaker-than-expected U.S. retail sales and producer prices data on Friday. The 10-year U.S. Treasury note yield fell roughly 5 basis points on Friday to a 2-week low.
"It is difficult for the dollar to rise when long-term U.S. Treasury yields head in the opposite direction, and yields look to remain capped for a while," said Koji Fukaya, president of FPG Securities in Tokyo.
"The drop in yields looks overdone, but Treasuries have been showing less of a response to strong data while reacting more to weak ones. This is perhaps understandable when debt market expectations are that a rate hike would not result in a series of tightening steps."
Already slim expectations for a U.S. interest rate increase in September were trimmed even further after the data, while prospects for a rate hike in December also took a knock.
Federal funds futures implied traders saw a 43 percent chance the U.S. central bank would increase interest rates at its December policy meeting, down from 47 percent shortly before Friday's data.
"The dollar's push lower that we anticipate until later in the month gained momentum following the disappointing U.S. retail sales report before the weekend," wrote Marc Chandler, global head of currency strategy at Brown Brothers Harriman.
"The dollar's technical tone has deteriorated, while economic data is unlikely to be sufficient to reverse sentiment."
U.S. economic data due this week include Tuesday's housing starts, consumer price index and industrial output and the Philadelphia Fed's business sentiment index on Thursday.
Asian currency markets showed little reaction to Monday's data which showed Japan's economic growth stalled in the second quarter.
The world's third-largest economy expanded by an annualised 0.2 percent in the second quarter, less than a median market forecast for a 0.7 percent increase, Cabinet Office data showed on Monday.