* U.S. retail sales post biggest rise in seven months in July
* Investors await minutes of Fed's July meeting for policy clues
* Easing U.S.-North Korea tensions trigger dollar short-covering
By Lisa Twaronite
TOKYO, Aug 16 (Reuters) - The dollar was steady in Asian trade on Wednesday, holding onto most of its gains made after strong U.S. retail sales data kept alive the chance of another Federal Reserve interest rate hike this year.
Minutes from the Fed's July meeting will be released later on Wednesday, and will be watched for clues on the timing of rate hikes as well as whether the Fed is likely to announce a reduction in its balance sheet at its September meeting.
"I can't expect anything hawkish from the minutes," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.
"In the end, I think the Fed will raise interest rates as early as December this year, and this is not fully priced in the market."
He said there was a still a chance for further dollar gains if market participants began to price in higher probability of a rate increase. Fed fund futures are now showing a slightly better-than-even chance for a hike this year.
The dollar index, which tracks the greenback against a basket of six major rival currencies, was flat on the day at 93.835, well above its 15-month low of 92.548 plumbed earlier this month.
Easing fears of armed conflict between the United States and North Korea also prompted investors to buy back riskier assets they had sold last week as fiery rhetoric between the two countries escalated.
On Tuesday, state media said North Korean leader Kim Jong Un has postponed a missile strike toward the U.S. territory of Guam, which prompted investors to pare holdings of perceived safe-haven assets such as the yen, the Swiss franc and U.S. Treasuries.
Higher U.S. yields bolstered the dollar. The yield on the benchmark 10-year U.S. Treasury note rose to 2.267 percent in Asia from its U.S. close of 2.266 percent on Tuesday and 2.218 percent on Monday.
The dollar was slightly lower against its Japanese counterpart at 110.65 yen, but was well above a four-month low of 108.72 touched on Friday after disappointingly cool consumer inflation data.
"It seems that the tension on the Korean peninsula is easing, and the short-covering of the dollar-yen is happening, fuelled by the better-than-expected U.S. data," Yamamoto said.
U.S. retail sales jumped 0.6 percent in July, handily beating economists' estimate of a 0.4 percent reading, to post their biggest gain in seven months as consumers bought more cars and increased discretionary spending.
An unexpectedly strong rise in an index on manufacturing activity in New York state from the New York Federal Reserve also cheered dollar bulls. The index rose to 25.2 points in August, its highest level since September 2014.
The euro was steady at $1.1740, after falling as low as $1.1687 overnight, its lowest since late last month.
"Some people think the euro may be the best option over the dollar, but I'm sceptical of that," said Masashi Murata, senior currency strategist at Brown Brothers Harriman.
The eurozone economy has strengthened, partly due to a relatively weak euro, so eventually the European Central Bank will grow uncomfortable with a rising currency, he said.
"The current levels look okay for the ECB, but how about $1.20? I think the ECB would dislike such a situation, with a weakening U.S. dollar," Murata said.
Reporting by Lisa Twaronite; Editing by Eric Meijer and Kim Coghill
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