FOREX-Dollar holds its ground ahead of inflation data, yuan steadies

* U.S. CPI data due at 1330 GMT

* Yuan nudges higher after Thursday's drop

* Euro stuck just below $1.13

* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

LONDON, Dec 10 (Reuters) - The dollar held its ground on Friday as traders prepared for U.S. inflation figures later that could cement the course of interest rate rises next year, while the Chinese yuan regained its footing after a big tumble in the previous session.

The euro, seen as vulnerable to a Federal Reserve hike especially if European rate rises lag, dropped 0.4% on Thursday and was steady at $1.129 in early European trading - still not far from its 2021 low of $1.1186.

The dollar index nudged higher to 96.255 and was headed for its seventh consecutive weekly rise ahead of the data, which is due at 1330 GMT. Annual price gains of 6.8% are expected and any upside surprise will be interpreted as a case for a faster Fed taper and rate rises sooner.

U.S. consumer confidence data is also due on Friday, and if it holds up could portend more price pressures ahead.

Jim Reid, a strategist at Deutsche Bank, said hawkish comments recently pointed towards tighter policy and added that for inflation numbers, "the bar is extremely high for today's data print to alter their (policymakers') course, especially with the Covid outlook having not deteriorated markedly since his (Chair Jerome Powell's) testimony."

The Fed, European Central Bank, Bank of England and Bank of Japan all meet next week and the combination of higher inflation, possible central bank responses and the spread of the Omicron variant have set market volatility gauges surging .

"Judging by the way the dollar is trading ... I'd argue traders are positioning for a higher CPI print which cements a view that the Fed will increase the pace of tapering its QE programme," said Chris Weston, head of research at Pepperstone.

China's yuan fell in onshore and offshore markets on Thursday after the People's Bank of China (PBOC) raised FX reserve requirements for the second time since June and was further pressured when the central bank set its trading band midpoint weaker than expected.

Sustained yuan buying from corporates who've amassed an enormous dollar stockpile over the pandemic years drove a bit of a recovery to 6.3650 per dollar on Friday, however - suggesting to analysts it might steady rather than reverse too far. The offshore currency traded at 6.3717 after rising to 6.33 before Thursday's tumble, its highest since May 2018.

"This move by the PBOC should negate any immediate expectations of further downside drift in the dollar/yuan, although a sustained upward move in the pair is not expected," said analysts at OCBC Bank in Singapore. "The base case for now is a return to the previous 6.3600 to 6.4000 range."

The yen was last down slightly at 113.58 per dollar. Sterling meanwhile fell 0.1% to $1.3214, towards the 2021 low of $1.3161 plumbed this week as a strong dollar rattled most G10 currencies and the UK introduced new restrictions to fight the Omicron COVID-19 variant.

(Reporting by Tommy Wilkes Additional reporting by Tom Westbrook in Sydney Editing by Catherine Evans)