SINGAPORE - The dollar was eyeing its first weekly gain in more than a month on Friday as bets for another rate hike by the U.S. Federal Reserve in May firm, though its gains were capped by soft economic data pointing to a slowing economy.

In Asia, Japan's consumer inflation held steady above the central bank's target in March, with a key index hitting a four-decade high, putting pressure on the Bank of Japan (BOJ) to shift away from its ultra-loose monetary policy stance.

The dollar slipped against the Japanese yen in early Asia trade, though it rose against most major currencies, with the U.S. dollar index edging 0.06% higher to 101.84.

The index, which measures the greenback against six major peers, was on track for a weekly gain of more than 0.2% after five straight weeks of losses.

Rising expectations that the Fed will raise interest rates by 25 basis points in May have lent some support to the greenback. Money markets are now pricing in an 84.5% chance of such a hike next month, as compared to a 67% chance a week ago, according to the CME FedWatch tool.

Against the dollar, the euro slipped 0.03% to $1.0967, while sterling fell 0.09% to $1.24325.

However, the greenback's gains were capped after U.S. data released on Thursday added to growing recession fears.

The number of Americans filing new claims for unemployment benefits increased moderately last week, suggesting the labour market was gradually slowing. A separate report from the Philadelphia Fed showed its measure of factory activity in the mid-Atlantic region plunging to the lowest level in nearly three years in April.

"The U.S. economy is heading to recession," said Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia (CBA). "We think (it will) be in recession probably around the middle of the year.

"But the problem for the Fed is that inflation is still sticky at a higher rate, so we still think the Fed is going to increase interest rates at least once more."

Japan's economy was also exhibiting signs of broadening price pressures, with data out on Friday showing its core consumer price index rising 3.1% in March from a year earlier, while an index excluding fuel costs rose at the fastest annual pace in four decades.

The dollar was last 0.07% lower against the yen at 134.13 .

Friday's data may keep alive market expectations that the BOJ could phase out its massive stimulus programme later this year, with all eyes now on next week's BOJ policy meeting, the first to be chaired by new central bank Governor Kazuo Ueda.

"I don't think Ueda is going to change policy at his first meeting next week," said CBA's Capurso. "But there's been a few hints about a policy review, so that suggests to me that ... they'll move in the next few months."

In other currencies, the Aussie was last 0.07% lower at $0.6738, while the kiwi fell 0.12% to $0.61705.

Data out on Thursday showed that New Zealand's consumer price inflation was lower than expectations in the first quarter, though it remained near historic highs.

(Reporting by Rae Wee; Editing by Jamie Freed)