* Euro falls against dollar, ending three-day rally
* Japan's PM warns on public debt, default risks
* Sterling tumbles after weak industrial output data (Updates prices, adds comment)
By Steven C. Johnson
NEW YORK, June 11 (Reuters) - The dollar rose against the yen and euro on Friday as data showing an 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 $1.2150.
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 a surprise 1.2 percent slide in U.S. retail sales last month and left markets confident that U.S. interest rates would rise before those in Europe or Japan.
The dollar rose 0.3 percent to 91.66 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 [
].The euro fell 0.3 percent to $1.2075 <EUR=>, its first daily decline since Monday, when it hit $1.1876, its lowest level since 2006. The euro edged up to 110.70 yen <EURJPY=>.
The euro was still poised to end the week up 1.1 percent against the dollar after rallying for most of this week, but nonetheless was down 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.
"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.
Some market participants said a successful auction of Italian government bonds had helped bolster the euro earlier following strong demand at a Spanish auction on Thursday.
Sterling fell 1.2 percent to $1,4527 <GBP=D4> after an unexpected fall in British industrial production while the dollar rose 0.8 percent to 1.1520 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 reach its 2008 growth levels until 2012 or 2013. [
] (Additional reporting by Wanfeng Zhou and Vivianne Rodrigues in New York; Editing by Leslie Adler)