SINGAPORE, May 24 Reuters The dollar headed for its largest weekly rise in a month and a half on Friday as surprisingly strong U.S. economic data has left markets on edge about the outlook for U.S. inflation and interest rates.

May figures showed U.S. business activity accelerated to the highest level in just over two years and manufacturers reported surging input prices, prompting a pullback in U.S. interest rate cut expectations and a rise in government bond yields.

The dollar is up almost 1 this week on the Japanese yen to 157.11 yen, even though Japanese government bond yields have climbed too, scaling decade highs and clearing 1 at the tenyear tenor .

Japan39;s core inflation slowed for a second straight month in April, meeting market expectations and staying above the central bank39;s target at 2.2.

It39;s having very little effect on the yen, said Martin Whetton, head of financial markets strategy at Westpac in Sydney. The carry of holding dollars is far juicier, he said, while policymakers39; rhetoric has also made traders nervous about inflation and the risk rate cuts will be distant or small.

Minutes from the Federal Reserve39;s last meeting published this week showed a live debate among policymakers as to whether current rates are sufficiently restrictive to cool inflation.

Traders have pushed out the timing of the first Fed rate cut to December.

The Australian dollar faded to 0.6592 on Friday, having failed to hold a key 0.6650 chart level. That…