* Data calms U.S. rate hike expectations
* Major currencies seen hugging well-worn range
By Hideyuki Sano
TOKYO, Feb 17 (Reuters) - The dollar hit a one-week low against a basket of currencies on Thursday, hurt by worries over rising tensions in the Middle East and as subdued U.S. economic data helped keep a rise in U.S. bond yields in check.
But traders were not overly bearish on the currency against the backdrop of a generally improving U.S. economy and also as the euro is seen susceptible to lingering worries over the euro zone's debt problems.
The greenback fell on Wednesday after Israel's foreign minister, a vociferously far-right partner in the conservative coalition, said two Iranian warships planned to sail through the Suez Canal en route to Syria, calling the step a "provocation".
The news rekindled worries that a regime change in Egypt could make the entire region unstable, although financial markets were not completely risk-averse with Wall Street shares hitting new highs.
The market's knee-jerk reaction was to sell the dollar, although it has tended to be bought at times of crisis in the past.
"My feeling is the market is looking beyond the era where the U.S. has been the world's policeman," said Teppei Ino, an analyst at Bank of Tokyo-Mitsubishi UFJ, adding that the threat of geopolitical crisis no longer automatically leads to dollar buying.
Traders kept an eye on the Middle East, as clashes are reported in many countries including Bahrain, a regional hub for banking and financial services and home to a major U.S. naval base.
But many traders said ramifications from uprisings in the Middle East on developed economies and their currencies were far too complex at this point, leading many traders to expect the dollar to stay in its well-worn range.
The dollar index fell 0.1 percent to 78.144, falling as low as 78.048, its lowest in a week but well above its three-month low of 76.881 hit earlier this month -- a support few traders expect it to test in the near future.
The euro rose 0.15 percent in Asian trade, adding to its 0.5 percent gains on Wednesday, to $1.3588, extending its recovery from a three-week low of $1.3428 hit last week.
The euro could face resistance around $1.3630-45, where its 14- and 21-day averages lie as well as a 50 percent retracement of its decline earlier this month.
Worries about the Middle East kept the safe-haven Swiss franc near a one-week high against both the euro and the dollar.
The dollar fetched 0.9588 franc, having fallen as low as 0.9554 franc on Wednesday while the euro bought 1.3025 francs, near a one-week low of 1.2974 hit on Wednesday.
The dollar also ran out of steam against the yen after hitting an eight-week peak of 83.98 yen on Wednesday. It fetched 83.58 yen..
The dollar also lacked fuel as U.S. bond yields have shown signs of stabilising.
U.S. industrial output data fell short of market expectations a day after retail sales data disappointed investors.
Minutes of the Federal Reserve's Jan. 25-26 policy meeting suggested the bank remained unhappy with the job market's recovery and the consensus was still firmly aligned with completing the planned purchase of $600 billion in government bonds.
Although rising inflation around the globe has led some investors to speculate there could be a rate hike by the Fed, such expectations will likely prove to be premature, said Junya Tanase, a strategist at J.P. Morgan Chase Bank.
"The risk of inflation varies from country to country. In the United States, inflation is still not an imminent risk and U.S. interest rates are starting to tick down. That's capping the dollar," Tanase said. (Editing by Michael Watson)