SINGAPORE: The dollar was steady on Friday near seven-week lows as nervousness over the banking system kept investors skittish and traders absorbed the Federal Reserve's hints of a pause to interest rate hikes.

The dollar index, which measures the currency against six major rivals, fell 0.019% at 102.56, just above the seven-week low of 101.91 it touched on Thursday. The index eked out a small gain on Thursday, its first in six trading days.

The Fed on Wednesday raised interest rates by 25 basis points, as expected, but took a cautious stance on outlook because of banking sector turmoil. U.S. Treasury Secretary Janet Yellen on Thursday reiterated that she was prepared to take further action to ensure that Americans' bank deposits stayed safe, in a bid to calm investor nerves.

Banking stocks have been battered in the last two weeks following the sudden failures of two U.S. lenders and the emergency sale of embattled Swiss bank Credit Suisse to rival UBS.

"Central banks have already delivered the interest rate rises following the recent banking turmoil," said Carol Kong, a currency strategist at Commonwealth Bank of Australia, adding that currencies would continue to be driven by headlines on the banking sector.

"I think things will probably be pretty quiet today, at least in the Asia session," she said.

The yen strengthened 0.34% to 130.37 per dollar, having touched six-week high of 130.28 earlier in the session. Japan's core consumer inflation slowed in February, but an index stripping away energy costs hit a four-decade high, data showed on Friday.

With inflation still exceeding the Bank of Japan's 2% target, the data will keep alive market expectations of a near-term tweak to its bond yield control policy, according to analysts.

The euro was down 0.03% to $1.0827, easing from a seven-week high of $1.0930 it touched on Thursday. Sterling was last trading at $1.2275, down 0.08% on the day.

The Australian dollar fell 0.31% to $0.666, while the kiwi fell 0.22% to $0.623.

(Reporting by Ankur Banerjee in Singapore; Editing by Jamie Freed)