TOKYO (Reuters) - The dollar steadied on Thursday, hovering near a one-week high versus the euro, supported by a slight rise in Treasury yields following news of an uptick in U.S. inflation.

Concerns over the health of the European banking sector also weighed on the euro and underpinned the dollar after media reported that 11 euro zone banks had failed stress tests run by the European Central Bank. The test results will be published on Sunday.

The dollar edged up 0.1 percent to 107.20 yen, so far eking out a 0.2 percent gain versus the Japanese currency this week.

Data from the U.S. overnight showed the U.S. CPI rose 1.7 percent in the 12 months through September after a similar rise in August.

The euro stood little changed at $1.2645, within reach of a one-week low of $1.2637 hit overnight.

Market focus was on the euro zone business sentiment PMI due later in the session. Signs of the euro zone economy losing momentum have helped feed global growth fears this month, and any fresh suggestion of economic weakness is expected to push the euro lower.

"The euro will come under pressure if the PMI readings disappoint. But it will not benefit the dollar too much in turn, as U.S. yields still remain relatively low," said Junichi Ishikawa, market analyst at IG Securities in Tokyo.

"Market players are hesitant to build positions ahead of next week's Federal Reserve meeting, especially as officials have sent dovish signals recently," he said.

A weak euro zone PMI reading could also dampen expectations of an early rate hike from the Federal Reserve, and act as a drag on the dollar.

The dollar index, a gauge of the greenback's strength against a basket of major currencies, stood little changed at 85.766 , hovering close to a one-week high of 85.789 reached the previous day.

Sterling extended losses after a setback overnight from dovish Bank of England minutes, which showed policymakers were firmly against raising interest rates when they met earlier this month.

The pound was down 0.1 percent at $1.6044 after hitting a one-week trough of $1.6012 the previous day.

The New Zealand dollar fell about half a U.S. cent on Thursday in the wake of softer-than-expected inflation data that could give the Reserve Bank of New Zealand room to further delay its next interest rate hike.The kiwi fell toward $0.7860 - a low last seen on Oct. 15 - from around $0.7910 after the consumer price index rose 0.3 percent in the third quarter, short of the 0.5 percent forecast.

The Australian dollar held steady at $0.8679.

(Additional reporting by Ian Chua; Editing by Eric Meijer)