NEW YORK, June 11 (Reuters) - The dollar surrendered gains against the yen on Friday after data showing a surprise drop in U.S. retail sales last month dented risk appetite and raised questions about the strength of recovery.

The euro also fell, snapping a three-day winning streak against the dollar, as U.S. stock futures turned negative and options-related selling capped its 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 Consulting in Washington. I suspect the dollar will continue to be range-bound against most of its trading partners.

The dollar slipped 0.1 percent to 91.30 yen JPY= after trading at 91.78. The yen tends to rally when risk aversion rises and investors sell higher-yielding currencies and assets.

Also on Friday, Japan's new prime minister said overcoming deflation was an urgent issue and warned the country could risk default if it neglects its growing public debt and loses the market's trust.

The euro shed 0.2 percent to $1.2088 EUR=, but remained well above a multi-year low beneath $1.19 hit this week. Traders said its recent rally hit technical resistance in the $1.2150-55 area. The euro's recent decline accelerated when it fell below this area in early June and bottomed out at $1.1876 this week, its lowest since early 2006. It was up 0.1 percent at 110.68 yen EURJPY=.

A 1.2 percent slide in U.S. retail sales sparked some unease about the economy, which has been showing signs of improvement in recent weeks. But markets were disappointed last week when data showed fewer-than-expected job gains in May. 

Analysts still expect the Federal Reserve to hike U.S. interest rates before counterparts in Japan and Europe, though, and that should help the dollar in the months ahead.

I think the dollar can consolidate down here in these new ranges before breaking higher against most currencies towards the end of the summer, Doyle said.

Some market participants said a successful auction of Italian bonds had helped bolster the euro following strong demand at a Spanish auction on Thursday.

Despite the euro's sell-off this week it is poised to end 1.5 percent higher against the dollar, which would be its best weekly performance this year.

It has shed 1.5 percent on the month and nearly 16 percent this year, driven lower by fiscal concerns in the euro zone.

Many in the market expect the euro will stay under selling pressure in the longer term on concerns that debt problems in some euro zone countries are spreading. (Additional reporting by Wanfeng Zhou in New York and Naomi Tajitsu in London; Editing by James Dalgleish)